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INNOVATION; TECHNOLOGY; TRADE; DEVELOPMENT

March 2005

Afr ican Technolog y Deve lopment For um

H I GH L I GH TS:

Biofuels In Africa: A Criteria To Choose Crop Models

Scaling Up the Innovation Ecosystem

Knowledge, Technological Learning and Innovation for Development

Benefiting from Biotechnology: Promot-ing small-farm competitiveness

TNCs, Extractive Industries and Development

The Rise, Fall, Rise, and Imminent Fall of DDT

And more inside!!

ISSN: 1817-2008

Official abbreviation: Afr. Technol. Dev. Forum j

A T D F J O U R N A L V O L U M E 4 , I S S U E 3

“Competition is the keen cutting edge of business, always shaving away at costs”

(Henry Ford)

http://www.atdforum.org/ November 2007

Biofuels In Africa: A Criteria To Choose Crop Models for Food and Fuel

Seetharam Annadana

Scaling Up the Innovation Ecosystem Thomas D. Nastas

Knowledge, Technological Learning and Innovation for Development: The Findings, Arguments and Recommendations of UNCTAD’s

Least Developed Countries Report 2007 Charles Gore, Zeljka Kozul-Wright and Rolf Traeger

Benefiting from Biotechnology: Promoting Small-farm Competitive-ness and Intellectual Property Rights

Baris Karapinar and Michelangelo Temmerman

Transnational Corporations, Extractive Industries and Development UNCTAD

The Rise, Fall, Rise, and Imminent Fall of DDT

Roger Bate

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ATDF JOURNAL Volume 4, Issue 3

IN S I DE T HI S IS SU E

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55 Cover picture: Kenyan young-sters compete.

Above: Pictures from the South African Space Agency related facilities and two planets just dis-covered

Biofuels In Africa: A Criteria To Choose Crop Models for Food and Fuel

Seetharam Annadana ASR BIOTEC, 71/2, 21st A Main, Marenahlli, JP Nagar II Phase, Bangalore 560078, India e-mail: [email protected]

Bioeconomy can be defined as an economy whose basis is biomass and technology for sustainably meeting so-cieties requirements of energy, fuels and products. Stra-tegically countries across the globe are attracted to this development for several reasons,

1. Reduce dependence on Fossil Fuels

2. Better market values for agricultural produce

3. Adopt climate friendly energy, fuel and industrial feedstocks

4. Diversification and total utilization of agricultural potential; beyond food

However the first two reasons would be stronger attrac-tion for developing & developed countries, while the last two reasons would be additional compulsions or luxury so to say for developed nations. However it is a fact that fossil fuel resources are unevenly distributed across the globe, however with better agricultural technology, pro-duction could be evenly distributed, overcoming the un-even distribution of other natural resources supporting agriculture. Industrial Biotechnology is revolutionizing the conversion of biomass (sustainable alternative to fossil fuels) to energy, fuel and industrial feedstocks. Developments in Industrial Biotechnology to make clean

Abstract

The bioeconomy is based on two components: biomass and bioprocess, which is related to natural resources (energy crop, agro-residue, under-utilised waste, soil fertility, land-water availability) and novel technologies (industrial biotechnology, bio/chemical and/or thermo-chemical technology). The shift from fossil fuels to a bio-based economy is necessary, if the world aspires to a “reduced reliance on fossil fuel, mitigating climate change and benefiting rural community”. Biomass to biofuels and bio-materials brings in the paradox of food verses fuel, more so in developing countries, with limited natural resources. Employing micro-agriculture resource in LDC’s to meet future food-feed-fuel demands is a challenge. Africa which has the bulk of the LDC’s should find a balance to meet the need for food and demand for sustainable fuel, surely not at the cost of the each other. Keeping in mind dry land agriculture, this paper explores a possible criteria to choose a crop-based model, to meet feed-fiber-fuel demands of Africa.

Introduction

Henry Ford designed the famed Model T Ford to run on alcohol, he said it was "the fuel of the future". Similarly Dr. Rudolph Diesel invented his compression ignition engine in the 1890's which ran on peanut oil, the origi-nal "diesel fuel". Dr. Diesel believed biomass fuel to be a viable alternative to the resource consuming steam en-gine. The oil companies thought otherwise. Due to the prevalence and price of petroleum products, diesel fuel soon came to be accepted as a petroleum product as well (1). However the oil crisis of the early 1970s gave ethanol fuel a new lease of life.

In 2003, the biologist Jeffrey Dukes calculated that the fossil fuels we burn in one year were made from organic matter “containing 44×1018 grams (44 billion tons) of carbon, which is more than 400 times the net primary productivity of the planet’s current biota.”(2) This is equivalent to four centuries’ worth of plants and animal material.

ATDF Journal Volume 4, Issue 3

The economy of going green: the science, in-frastructure, products

and markets

ATDF Journal Volume 4 , Issue 3

rial for the production of biodiesel, however recent devel-opments have also led to the use of lingo-cellulosic bio-mass for production of biodiesel by gasification (synthesis gas) and Fischer-Tropsch (FT) process. Fats are converted by a process of trans esterfication to make biodiesel and glycerol, shown in Figure 1 (www.utahbiodiesel.org).

However the production of ethanol from unconventional complex sugar like lignoceullosic biomass (corn stover, straw, sugarcane bagasse, forest residues, municipal solid waste), or through conversion of methane to Ecalene (Gas to liquid, GTL) are recent trends, dynami-cally evolving. The focus for technology development (Figure 2) has been in the four areas:

-Cellulosic biomass fractionation to its components (cellulose, hemi-cellulose, lignin)

and cost effective processes is the driver for renewed interest in the bioeconomy. The key categories of prod-ucts, of this bioeconomy are bioenergy, biofuels, bioma-terials, bulk and fine chemicals. The bioeconomy is a sector worth over 1.5 trillion euros (European Commis-sion, 2005).

Fuels mainly diesel & petrol can be replaced by similar or actually better chemical quality and eco-friendly products by processing biomass, hence the term biofu-els. In general plant & animal fat is used as raw mate-

Crop kg oil/ha litres/ha corn (maize) 145 172 cashew nut 148 176 oats 183 217 lupine 195 232 kenaf 230 273 calendula 256 305 cotton 273 325 hemp 305 363 soybean 375 446 coffee 386 459 linseed (flax) 402 478 hazelnuts 405 482 euphorbia 440 524 pumpkin seed 449 534 coriander 450 536 mustard seed 481 572 camelina 490 583 sesame 585 696 safflower 655 779 rice 696 828 tung oil tree 790 940 sunflowers 800 952 cocoa (cacao) 863 1026 peanuts 890 1059 opium poppy 978 1163 rapeseed 1000 1190 olives 1019 1212 castor beans 1188 1413 pecan nuts 1505 1791 jojoba 1528 1818 jatropha 1590 1892 macadamia 1887 2246 brazil nuts 2010 2392 avocado 2217 2638 coconut 2260 2689 oil palm 5000 5950

Box 1. Crop wise oil/fuel data per hectare

Figure 1. A pictorial overview of fats to Biodeisel


paradox of food vs. fuel as the bioeconomy emerges. If they have not met their food requirements in the past, how will they now cope with the additional stress of hav-ing to produce fuel also from agriculture?

The correct Biomass (S & SF) for production in develop-ing countries can only be decided after looking into a maze of issues like their food-feed-energy requirement, existing malnutrition, potential for irrigated/ dryland pro-duction, existing and potential to expand forests, agricul-tural productivity constraints, underutilised agricultural/forestry residues, net carbon emission, energy balance etc. With the biomass economy, the paradox of S & SF arises due to the following:

Should a grain crop be distilled to make ethanol fuel or should the villagers eat the grain? If they use the grain for livestock feed, it can be used for ethanol and still feed the livestock: the distillation process to produce ethanol converts the carbohydrates in the grain while leaving the protein (Table 3). The protein residue is excel-lent stock feed, which can be supplemented by forage crops which humans can't eat. This could mean im-proved utilization of the available resources.

But what is the net GHG emission and energy balance for grain-ethanol? Is cellulosic a better option? (Figure 4).

Should a crop such as soybeans be used to make methyl esters (biodiesel), or it is better for villagers to live by eating off the bean’s products? Or selling them? Or should they press them to make oil, for cooking or for selling (the most efficient would mean hexane extraction in large scale), and feed the high-protein residue "cake"

-Breakdown to simpler sugars like glucose, fructose, xylose -Conversion to ethanol and other bioproducts -GTL: Solids to gas to liquids using FT as an alternative to hydrolysis-fermentation route

Tremendous progress is being made at a rapid rate, on the technology platform front for conversion of biomass to bioproducts. However a similar progress is still to be seen in the development of biomass for bioproducts, or development of energy crops so to say. It remains to be seen, how the era of crop genomics will be able to con-tribute to the re-design of major crops grown in different parts of the world. If we can double the productivity of rice with one fourth of the current water required and reduce the lignin content in the straw and design it to have more easily fermentable complex sugars, it could make a tremendous impact on the need for food and sustainable fuel.

2 Paradox of Food & Fuel

The world already grows more than enough food & feed for all, but still a billion people don't have enough food to meet basic daily needs. There's more food per capita now than there's ever been before, enough to make eve-ryone fat. People starve because they're victims of an inequitable economic system, not because they're vic-tims of scarcity and overpopulation. Seventy percent of Global food production is in the north, while the bulk of malnutrition, poverty, lowest energy/capita is in the south with only 30% agricultural production, (4). Coun-tries challenged with poverty and malnutrition face the

Figure 2 Sugar/biomass to ethanol via hydrolysis- fermentation- distillation route and LCB via biorefinery route to etha-nol using thermo chemical as add on (NREL)


to livestock (small scale), which in turn they can either eat or sell, while using the livestock wastes (and the crop wastes) to make compost to renew the soil, or to generate biogas for cooking and heating? (The heat generated by the composting process can also be har-nessed for heating). Or should they grow a native crop, instead of one imported? (4)

A major criticism often levelled against biomass, par-ticularly against large-scale fuel production, is that it could divert agricultural production away from food crops, especially in developing countries. The basic ar-gument is that energy-crop programmes compete with food crops in a number of ways (agricultural, rural in-vestment, infrastructure, water, fertilizers, skilled labour etc.) and thus cause food shortages and price in-creases. The subject is far more complex than has gen-erally been presented since agricultural and export pol-icy and the politics of food availability are factors of far greater importance.

Usually the "answer" is in a blend of technologies. Biofu-els can be used to power small-scale farm and work-shop machinery and electricity generators as well as local vehicles, if you choose the right crop & process technology (Table 3). The question is how do we ensure that available technologies are put to use in the poorest countries, the driver is missing. Capacity building is therefore essential in micro communities to sustainably exploit natural resources like land, water, forest for feed-food-energy needs. The argument should be ana-lysed against the background of the world's real issues like, the use of biomass for food, as animal feed, the under-utilized agricultural potential, the potential for productivity, and the dis/advantages of producing bio-fuels (4). The rest of the article briefly indicates the po-tential for biomass production in Latin America, Asia

and dwells with African continent in greater detail, in the background of their existing soci-econo-evironmental (triple bottom line of sustainability) conditions, from which arises the paradox of S & SF.

3 Feed-Food-Fuel Security for Africa

South Africa (SA) produces corn among other crops in surplus but there are 10 other nations in the continent on deficit for the same grain, which is one of the prob-lems of the African continent. Should SA focus on pro-duction of crops for ethanol, overlooking regional food security? Concentrating more on regional food security on the short-term basis and re-looking at Biofuels with improved technology (lingo-cellulosic biomass to etha-nol) may be a justifiable decision due to following rea-sons. Firstly, SA produces surplus maize/sorghum, which are not the ideal biomass for fuels, as it is com-petitive to food & feed. Secondly, technology is fast mov-ing to displace corn with lingo-cellulosic feedstocks, due to lower net GHG emission (17) and higher energy bal-ance (18) as indicated in Fig. 6 (17). Thirdly, technology progression should be sector wise, and the full potential of agricultural biotechnology is yet to be diffused into the African continent, as for example only 24% of the corn grown is transgenic. It’s optimal to start developing capacities in themes essential for the bioeconomy, en-sure Africans truly benefit by green biotechnology, be-fore ushering in white biotechnology, as green drives white biotechnology in a bioeconomy. Biomass is very crucial for ensuring the food-feed-fuel security of Africa, and green biotechnology is yet to make an impact on the African economy. Biotech processes to convert bio-mass to bioproducts (biofuel, chemicals, materials), varies dependent on the source of biomass and cur-

Figure 4


rently most of the biomass is material used in the past for food-feed-energy. Developing biomass specifically for the production of bioproducts is the target for green bio-technology and a lot of information and resource is hid-den in the biodiversity of Africa, which should be ex-plored. Bioprospecting for an ideal biofuel crop is a major branch of prospecting, just emerging and we must put in place capacities to benefit from this wave. Bioprospect-ing for Feed-Food-Fuel Security in Africa is a very interest-ing theme.

4 Energy Security or Energy Crops?

Contrastingly biofuels in Africa has to be one of the three major produces expected from agriculture in addition to grain and fodder. Two-thirds of the African domestic en-ergy supply currently relies on biomass (19). Therefore, biofuels has to be noncompetitive to feed, food and do-mestic energy. It directly implies that energy crops like oil palm, jatropha, sugarcane, corn requiring large scales of production with limited sector benefits (Table 3), are not suited to address this unique problem. Therefore Africa needs a crop that addresses all issues, it should be pref-erable native to Africa, suited for arid agriculture, C4 in-stead of C3, and a crop already adopted into African food. A crop justifying all needs and promising for African agriculture is ”SWEET SORGHUM”(20), and this article christens it as Africa’s Millennium crop. This can poten-tial usher in ever green revolution, a terminology recently coined, to ensure sustainable development by Prof. M. S. Swaminathan.

Sweet Sorghum the Saviour of Africa?

Sweet sorghum has many uses, with potential to aid de-velopment. Sweet sorghum is a high biomass-yielding crop, grown for grain, feed, sugar and recently as an en-ergy crop for ethanol-electricity and serving human-animal food-feed requirements. (Ecoreport, Imperial Col-lege, London). Its excellent growth characteristics (high yield, drought-waterlogging-saline-alkali-resistance, wide adaptability), makes it an ideal choice for Africa. Prof. Li Dajue (Chinese Academy of Sciences) and Peter Griffee (FAO) coined the name "Four F's Crop" for sweet sorghum representing Food, Fuel, Fodder (feed), & Fiber (feedstock). Sugarcane is propagated from stem cuttings (4.5 –6 T/ha) while sweet sorghum is sown with just 4.5 kg/ha of seed.

Sweet sorghum is a potential energy crop as it produces up to 7,000 liters of ethanol per ha making it highly at-tractive for developing countries (FAO). For example Chi-nese agricultural planners see Sorghum as key for sus-tainable agricultural development in areas suffering from aridity and saline/alkaline soils. In the Huang Huai Hai

region and Northwest China, where the total area of sa-line-alkaline and salinized land is estimated at more than 170,000 sq km, plants germinate with difficulty, grow slowly, produce poor harvests, if not completely fail.

This lack of agricultural development is the cause of pov-erty in many rural areas and a threat to China's long-term food security (FAO). Chinese since 1970 have developed sweet sorghum varieties yielding 5 T of grain, 7.5 T of sugar and 14.5 dry T of lignocellulosic biomass per ha per crop of 4-5 months duration and currently there are over 7000 varieties/hybrids indicating its importance in China (21). China and Italy are setting up large bioetha-nol projects with sweet sorghum planted in 21000 and 7000 ha, resulting in 112302 & 42202 T of ethanol/annum respectively (22).

Similarly Nimbkar Agricultural Research Institute, identi-fied sweet sorghum as the ideal crop for feed-food-fuel security of rural India and developed solar distillation of sugar juice to ethanol and used the ethanol for energy efficient stoves (http://nariphaltan.virtualave.net/index.htm, 23, 24). It’s demonstrated that sweet sor-ghum juice can be used as feedstock for the production of hydrogen using thermophilic bacteria (25). Sweet sor-ghum stalk has 15-18% fermentable sugars and has the potential for cane yield of 40 T/ha or more, but should be crushed within 48 hours of harvest (AICSIP, NRC for Sorghum, Hyderabad, India). ICRISAT India station initi-ated an identification-development program for sweet sorghum in 2002, and has hybrids for release in India, with industry-incubators for ethanol production trials.

Research on Sorghum and harnessing its prospects would be an excellent program for south-south co-operation for sustainable development. A 8-year agro-nomic trial and a 2-year industrial trail concluded that 1/3rd of Southern Africa’s fuel could be purely met by sweet sorghum grown in only 1% of the total existing cropland. It suggests sweet sorghum future with CDM (http://cdm.unfccc.int/) options is excellent, as an sus-tainable alternative to the OECD fossil route for develop-ment (26). In tropical countries one can easily take two crops of sweet sorghum and produce more ethanol per unit land, in addition to serving food-feed requirements (20). When common African crops corn, sweet sorghum, sugarcane, cassava, sweet potato were compared, for their potential suitability for cultivation with 25% and 50% increase in production, without compromising on food security, next to corn it is sweet sorghum as the second largest crop (27).

However when compared with corn for ethanol produc-tion (Fig.6, 15), sweet sorghum is a clear winner due to


yield (28) and lower net GHG emissions (IEA, 17, 18). Sweet Sorghum has shown promising results also in southeastern United states, yielding ethanol (600 gal-lons/acre) equivalent to sugarcane, and at BECON Iowa state University, it is being studied as a alterna-tive to corn (400 gallons/acre, 28). The seasonality in crop production and instability/difficulty in conversion of some of sweet sorghum sugars have been bottle-necks. The problems of seasonality would be mainly in temperate countries, while difficulties of extraction/conversion of sorghum is now overcome with thermop-ermiation technology of Praj, India. These global ex-periences clearly sends home a strong message to Africa, which suffers from poverty, malnutrition, low energy/capita, desertified landscapes and drought. There is a lot of information on sweet sorghum uses in Africa, role in African bio-energy security etc., however it is not clear, as to why they are no functional sweet sorghum based establishments.

This has to be the focus for change from existing Afri-can scenarios. As per FAO 1991, Africa has in total, a potential land for expansion at 752 Mha, next to Latin America is size, of which over 50% is waste lands with the balance divided 20% each of arid, irrigated and 10% of flooded zones.

5 C O N C L U S I O N

Africa has some of the poorest countries, suffering the most of Aids, with the most severe droughts and cases of malnutrition globally (www.data.org/whyafrica/). 2025-30 global population addition will be 67 million, 2045-50 (943 million), practically all increase in devel-oping countries, and by 2050, every second person added will be in sub-Saharan Africa (43). This in addi-tion to existing malnutrition, signals to concentrate on food security, hence the FEED-FOOD-FUEL strategy; with the 4F crop SWEET SORGHUM for Africa. Almost 1.6

Figure 5. Aschematic representation of sweet sorghum based bioenergy Village complex, encompassing microdistillery for ethanol, grain for human consumption and fresh-dried fodder for animal production (20)


Figure 6. Estimated Ethanol gallons per ton biomass (dry basis, 28)

Biomass: Energy Crops 1 2 3 4 5 6 7 8 9 10 11 Arable-land Non-edible oil ++ +++ + BFI +++ ++ ++ ++ + + + Corn/Grain +++ +++ + BF +++ + +++ + + +++ +++ Edible oils +++ +++ + BFEI +++ + +++ ++ +++ ++ +++ Bamboo/Fibrous + + ++ BFI +++ +++ + +++ ++ + + Strach/Tubers ++ ++ + BFEI ++ ++ ++ + +++ ++ ++ Sugarcane/Beet +++ ++ + BFEI ++ + + + +++ +++ +++ Waste-land Non-edible oil ++ + ++ BFI +++ +++ + ++ ++ + + Woody species + + +++ BFI +++ +++ + +++ +++ + + Biomass: Production Residues Agriculture/Industry + ++ + BFEI + +++ + +/++ +++ ++ +++ Animal Husbandry/Industry + + + BFEI + +++ + +/++ +++ +++ +++ Aquaculture/Industry + ++ + BFEI + +++ + +/++ +++ ++ +++ Forestry/Industry + + + BFI ++ +++ + +++ ++ + ++ Biomass: Waste Industrial Waste + ++ + BI ++ ++ ++ +/++ + ++ +++ Municipal Solid Waste + + + BFI ++ +++ + +/++ ++ + +++ Municipal Liquid Waste + + + BFI + ++ + + + + ++ Oil Waste + + + BI + +++ ++ +++ ++ + ++

LDC’s Ideal Biofuel Biomass +/++ + + BDFEI +/++ +++ + +/++ +++ +++ ++/+++

Table 3. A table summarizing salient characteristics of biomass production, processing technology status and potential bioproduct generatability with an LDC’s idealistic contrast (sweet sorghum) as the last example in the table. This is a hypothesis based on brief literature search and basic agricultural and environmental science. Conducting a study to validate this hypothesis is worthwhile. Column 11 indicates that resources currently emitting high GHG would be poten-tial candidates for alternate processing and attraction for CDM.

Note that: 1: Biomass production Inputs 6. Net Energy Balance 11. Current GHG emission 2: Competition to Land, water, Food, Feed 7. Net GHG Emission 3: Risk to Biodiversity & Environment 8. Technology 4: B; Biofuel, D: Food, F: Biofertilizer, E: Feed, 9. Sectors Benefited I: Industrial feedstock 10. Maturity of Technology 5: Scale

+++ High/Large/Complex , ++ Medium , + Low/small/Simple. Sectors: Feed-Food-Fuel


billion people in developing countries do not have ac-cess to electricity today, representing a little over one-third of world population. Most of the electricity de-prived are in Asia and sub-Saharan Africa. By 2030, half the population of sub-Saharan African will still be without electricity; and Africa is the only region where the absolute number of people without access to elec-tricity will increase (44). The proportion of the popula-tion using traditional fuels will remain highest in sub-Saharan Africa, where 996 million people will rely on traditional biomass for cooking and heating in 2030 (44). Much of this can change if we address fuel secu-rity using Sweet Sorghum, is the authors opinion. This crop can provide energy security at microlevel by the micro energy village complex (20) and considerable percentage of transport biofuels for Africa (26), in addi-tion meting a part of food & feed requirement. Studies indicate the possibility to produce ethanol competitive to Brazilian ethanol or cheaper at 19 US cents per liter (45), promising a biofuel revolution for Africa.

Sweet Sorghums real potential lies in the fact that the crop can establish well in sub-optimal conditions, allow-ing production of sugar and fiber rich stem, where oth-ers struggle. Secondly it consumes one-third the water required by sugarcane, therefore the net water con-sumption per liter of ethanol is significantly lower (26), which address drought problems of Africa. This feature of sorghum is very important in the background of cli-mate change, which will have more adverse effects in tropical areas than temperate. Developed countries will be beneficiaries with higher productivity in Canada, northern Europe and parts of the former Soviet Union, however poorest developing countries are likely to be negatively affected (46). Here the next 50-100 years will see widespread declines in the extent and potential productivity of cropland (47) particularly in sub-Saharan Africa and southern Europe (48, 49). Some of the se-verest impacts seem likely to be in the currently food-insecure areas of sub-Saharan Africa with the least abil-ity to adapt to climate change or to compensate for it through greater food imports (43). Growth in the live-stock sector has consistently exceeded that of the crop sector. The total demand for animal products in devel-oping countries is expected to more than double by 2030. Livestock production is the world's largest user of land, directly through grazing & indirectly through consumption of fodder/feedgrains (43).

In sub-Saharan Africa, low consumption levels of animal products have changed little over the last 30 years, contributing only 5 percent to per capita calorie con-sumption, about half the percentage of the developing

countries as a whole and a fifth of that of the industrial countries (43). The situation clearly indicates the need to also address feed security in Africa.

Sweet Sorghum can be used in existing sugarcane based ethanol industries, it’s an excellent alternative during sugarcane off-season (26). It’s also suited for the introduction of community based bottom up ap-proach for development of Africa and several sorghum models are being tested now (50), based on success stories with sugarcane (51). The need of the hour in Africa is to develop capacities very similar to the ones in Asia. In addition to this, the climate for investment and participation by the private sector in development of the continent, like in Asia is extremely essential for Africa.

Can we replace an economy whose every fibre vibrates with the logic of cheap oil and careless pollution with one which runs on renewable energy, heals our sur-rounding ecosystems and creates no waste? Can biofu-els truly compete with petrol? Is it just replacing Biofu-els with fossil fuels the solution, without a introspection of our lifestyles which could be highly energy consum-ing (each family member driving a car alone to work and back, instead of public transport or car pooling)? Will the future be biofuels with a significantly fuel effi-cient vehicle or is hydrogen the solution? Recent pro-jections suggest that ethanol could represent up to 5% of the world’s transport fuel by 2010. That figure may seem modest at first glance, but it is significant, consid-ering no other alternative fuel has had an equivalent impact on the gasoline market in over 100 years (IEA). However, there is a mismatch between those countries where biofuels can be produced at lowest cost and those where demand is rising most quickly (IEA). Arable land expansion will remain an important factor in crop production growth in many countries of sub-Saharan Africa, Latin America and some countries in East Asia, although much less so than in the past (43), indicating future expansion for biofuels. A key long-term concern is that higher usage of biofuels will lead to land being drawn away from other purposes, including food, feed or fiber production, leading to higher prices (IEA). Devel-oped countries would switch to import of biomass to satisfy local biofuel demand, resulting in further aggra-vation of the developing countries paradox of suste-nance and sustainable biofuels. Export of biomass for biofuels by developing countries can be a serious threat than an opportunity if nations use land-water-labour at the cost of feed-food and environment. Bioeconomy in developing countries therefore must act as a bridge between food & non-food uses for a crop, and not inde-


pendent of them, thereby ensuring feed-food-fuel secu-rity. Africa must start developing sweet sorghum based microdistilleries and micro energy village complexes. The South African National Biodiversity Institute sug-gests that over 1080 Mha of land is suited for Jatropha, which can make a tremendous impact on its energy security. All countries have to seriously address energy, fuel and water efficiency in all sectors of economic ac-tivity, and develop capacities for optimal use of natural resources for sustainable biomass (unicellular-energy crops-residues-waste) production to address MDG.

The Author

Dr. Seetharam Annadana is a freelance consultant for agricultural biotechnology in India. He operates through his own firm ASR BIOTEC, whose main focus is on Bio-fertilizers, plant Molecular Biology and Biofuels. Dr. An-nadana has been helping agencies to develop a model for sustainable biomass production and keeps himself updated with the evolving technology platforms, which is highly dynamic. He has been consulting for the Indian Industry for over 5 years now and has had close con-tacts with Dutch Biotech firms and obtained his Mas-ters and PhD education at Wageningen UR in The Neth-erlands. He has been resource persons to UNEP-GEF and UNIDO on subjects like Biosafety and Biofuels in the past.

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The Leverage of Venture Capital

In the U.S., companies that raised VC from 1970-2005 created 10 million new jobs and contributed more than $2.1 trillion in revenue in 2005 to the economy. [1] Ten million new jobs are 9% of the total private sector work-force in the US and 16.6% of U.S. GDP, an increase from 8.7 million jobs and $1.5 trillion in revenues in 2000.

Before Hotmail, people communicated by telephone, telex, fax and letter; no big deal. Once Hotmail was launched, communication was turned upside down as users realized huge gains in productivity, simplicity and convenience by accessing e-mail over the Web, 24/7, from any computer, anywhere in the world; with such benefits it’s easy to see why new industries formed around this solution.

Before eBay, people bought and sold collectables at auc-tions for centuries; no big innovation here either. But eBay created an innovative trading platform that combi-ned live auctions, the Internet and collectables that be-came the biggest online marketplace and seeded the creation of entire industries based on online trading.

Retailing and delivery existed for centuries too. Ama-zon’s big innovation was in the graphical interface to make product ordering simple, combining it with efficien-cies in warehousing and distribution.

What these successes have in common is that each created an innovative business model, mostly around a GameChanging technology; disruptive technology with superior performance or high cost reduction features. GameChanging solutions make products and services

Overview

BRIC, Chile, Hungary, Mexico, South Africa and others are replicating the strategies that made Israel, the US, Korea and others so successful in the creation of kno-wledge economies. Do alternatives exist with less risk and better chances of success in taking a seat at the global table of tech developers?

SMEs in partnership with governments and foreign in-vestors are working to create technology capacity and ensure their future in a knowledge-based world. Much energy is directed at replicating the strategies that made SMEs in Israel, Ireland, Korea, Singapore and Taiwan successful: they all focus on the development of technologies for global markets with government and donor support financing technology creation and VC initiatives.

Are these the best strategies with the greatest chances of success? Do alternatives exist, to build from a base of technical needs for the local market instead, to move developing country SMEs up the path of knowledge creation incrementally with greater numbers succee-ding domestically, and help position a few for entry into world markets? If yes, how can SMEs, governments and multinationals work together to generate new wealth and prosperity?

In this article I present a GoForward plan to scale up the innovation ecosystem and the investment needed for execution. I draw upon my experiences in transac-ting VC investments in Africa, Canada, the CEE (Central & East Europe), the CIS (countries of the former Soviet Union), Western Europe and the US.

Company Venture Investor Microsoft August Capital Intel & Apple Venrock United Healthcare Warburg Pincus Cisco & Yahoo Sequoia Hotmail Draper, Fisher & Jurvetson Genentech, Amazon.com, AOL, Intuit & Netscape Kleiner Perkins eBay Benchmark Google Kleiner Perkins & Sequoia Skype Draper, Fisher & Jurvetson, Index Ventures & Others

Table 1: Some top firms that were supported with venture capital [2]

Scaling Up the Innovation Ecosystem

Thomas D. Nastas2

Actions of the governments in the CEE, the CIS and Latin America illustrate the commitments that they execute to jump into the global technology, commercialization and VC game. The Mexican Government made a commit-ment to grow its $3 billion a year IT and software indus-try into a ‘near-shore’ destination as an alternative to India for US customers. The Brazil and Argentina Ad-ministrations finance innovation through PPPs (public-private partnerships) in healthcare, global biotech and alternative energy. The Hungarian Government seeded the Development and Innovation Program, Microcredit Program for SMEs and Enterprise Promotion.

The Putin Administration is spending billions of petrodol-lars to diversify Russian growth from oil to knowledge creation, an experiment that other CIS and Latin Ameri-can oil producing countries are monitoring; is economic diversification possible, with what results and leverage, at what cost and sacrifice? Russia is investing state money in infrastructure including enterprise zones, tech-noparks and incubators, ‘build it and they will come’ strategies to catch-up to leap-ahead of competitors in global technology.

Especially ambitious is the creation of the Russian Ven-ture Company, a US$500 million fund-of-funds modeled after Israeli’s Yozma fund-of-fund scheme (Box 1). Its PPP mandate is to co-invest with the private sector and create up to twenty new Russian technology VC funds with a total capitalization of $1 billion, half from the Rus-sian Government with the matching of $500 million

accessible to global customers.

Each of these tech and business model platforms spaw-ned business ecosystems of new suppliers and partners. It’s estimated for example, that for every $1.00 of reve-nue that Microsoft earns in Chile, another $11 is made by partners, suppliers, system integrators and the like in the Microsoft Chilean ecosystem; [3] in Argentina, $17 of supply chain revenues are generated for every $1 of Microsoft sales. [4] Such leverage demonstrates the broad economic value generated by integrating new ideas, innovation, technology and VC.

The Allure of Global Technology Markets

Emerging market country governments see the business and financial successes of SMEs solving global needs. They encourage their enterprises to attack world markets with government money like VC to support this strategy.

Large opportunities attract the best scientific minds, en-trepreneurs and investors: cures for human health pro-blems in aging and disease, needs for security in a world that is increasingly perceived to be violent and energy alternatives in the face of climate change and rising oil prices. In solving global needs and wants, new wealth and prosperity results as the reward for industrial crea-tion.


B O X 1 . W H A T I S Y O Z M A A L L A B O U T ? The ‘Yozma’ fund-of-funds was an investment company capitalized with $100 million by the Israeli Government, $80 million for investment into the creation of new VC funds and the remaining $20 million for direct investment into Israeli technology SMEs. Yozma invested $8 million into a private VC fund. A minimum of $12 million/fund was invested as partnerships between Israeli and foreign venture capitalists. Yozma gave fund managers the option to ‘buy-out’ the government’s equity stake after five years.

In the first three years of operation, Yozma catalyzed the creation of ten VC funds with a total capitalization exceeding $200 million. Yozma is correctly given the credit for creating the VC industry in Israel in the 1990s.

‘Yozma’ fund-of-fund schemes [10] are terrific solutions if a country has a capital markets problem like Israel had in the early 1990s; proven technology but little access to global markets, little capital for commercialization and SME crea-tion. At the time, Israeli technology came from strategic R&D investments made by the military and released to the pri-vate sector. Other success factors include an Israeli industrial policy that funded innovative basic and applied R&D to create deal flow, and the unlikely and unplanned creation of entrepreneurs through military training in the ‘8-200’ intel-ligence unit.

Fund-of-fund strategies are not solutions if a country has a deal flow problem; when the quality and quantity of invest-ment opportunities are just too low to meet the requirements of financial VC investors. Chile has experienced disap-pointment with its fund-of-funds initiative; few investments transacted by Chilean venture funds due to the low and poor quality of the deal flow, not a lack of money in Chile.

Poor quality or low deal flow is not confined to just the performance of the technology, but also the availability of good mangers and specialists to operate technology start-ups. In Russia for example, it’s a challenge to attract good entre-preneurs and managers to technology SMEs. They have employment alternatives with better career opportunities, hig-her salaries and the potential to get rich quickly through an IPO in non technology like construction, retailing, branded consumers goods and transportation as examples.


doing so, he became the father of multilateral drilling.

In 1953, the Soviets drilled a main bore in the Bashkiria field (Bashkortostan today) with nine laterals and a hori-zontal reach of 136m (446ft). Although the cost was 1½ times more expensive than other wells, it penetrated the oil reservoir 5½ times better and generated 17 times more oil per day. From 1954-1974 the Soviets drilled 110 multilateral wells; 30 of them drilled by Grigoryan himself. [5]

Other Russian technologies widely used in hydrocarbon E&P (exploration & production) include in-situ combustion and vertical seismic profiling (VSP), invented in 1957 by geophysicist Evsei Galperin of the Soviet Institute of Earth Physics. His VSP profiles showed the structure of seismic wave fields, which generated huge productivity gains in locating hydrocarbons more accurately. After 50 years of improvements by Western developers (led by Bob Har-dage of Phillips Petroleum), VSP is used throughout the world.

With such technology successes in the petroleum indus-try and others in aerospace, IT and space exploration, investors and technology customers naturally look to the CEE and CIS for innovation in other spheres.

Few GameChanging Technologies

Over the last seven years, Innovative Ventures Inc., or IVI, and other VC investors evaluated hundreds of Russian deals in IT, telecoms, biotechnology, medical and others; yet collectively we have invested in only twenty-five or so. Likewise only a few dozen investments have been tran-sacted in the CEE and the Baltics during the last ten years.

Specifically, over the past three years, we have looked at oil E&P technologies for investment. Our findings provide a microcosm and a reflection of current events in the market, and why so few VC investments in technology are made. Leveraging the Soviet science and scientific foun-dation into knowledge based economies is a real chal-lenge.

In Russia for example, only 2% of the E&P innovations evaluated (Figure 1) have the performance characteris-tics that one might classify as disruptive, with superior performance or cost reduction features. Such Game-Changing benefits are required to attract international customers and investors and compete in global markets.

Even though the technologies evaluated had interesting features, they are not ready for customers or VC. They are R&D stage concepts and require money and time for testing and development, to get them market ready, cus-

from the private sector. All these initiatives are developed with the intention of taking a seat at the table of global technology development.

The private sector is active in the CEE, the CIS and Latin America too. Global powerhouses in multiple industries – Intel, Ford, TI, Nokia, Siemens, Motorola, Microsoft, Boeing, IBM, United Technologies, Samsung, Cadence and Sun – established R&D centers and selectively incor-porated domestic technology into their products. A few international VC funds invested in Argentine, Brazilian, Hungarian, Mexican and Russian innovations.

Yet with all this capital and horsepower invested and to-be-invested, something is amiss in many emerging mar-kets. A critical mass of seed and early stage SME invest-ment opportunities do not exist for domestic or foreign VCs. This is not due to a lack of money as these econo-mies are awash with capital and investors looking for op-portunities.

Moreover CEE and CIS governments have advantages that their counterparts in Latin America, SE Asia and Afri-ca lack; scientific accomplishments in defense, space and security that fed the Soviet military machine with cutting-edge universities and world class researchers in kno-wledge creation.

Innovators in Technology

Hungary-born American software developer Charles Simo-ny led the development of Microsoft Excel and Word, pro-ducts that revolutionized financial analysis and word pro-cessing to create billions of dollars of new wealth for his employer and himself.

In the 1950s, 43 horizontal oil wells were drilled in the Soviet Union, one of the most ambitious drilling efforts for the untested technology. Building on this work and that of U.S. scientist Lester Uren, Alexander Grigoryan put theory into practice by branching the oil wellbore, and in


Even with good performance data, attacking internatio-nal markets requires disruptive technologies to over-come the purchasing habits of customers and penetrate established supply chains. However GameChanging technologies are far and few as they frequently result from coincidence and timing vs. planned innovation (Box 3)

If the chances of creating disruptive solutions are so slim, what can a country, its scientists, universities and SMEs do to get into the technology and commercializa-tion business? Given so few GameChanging technolo-gies in oil E&P, IT, biotechnology, etc., what can Estonia, Hungary, the Czech Republic, Russia and others with money and lots of talent but only ideas, do to build their place in the knowledge world? And what actions can Argentina, Brazil, Chile, Malaysia, Mexico, Vietnam and others adopt when they lack the technical foundation of Soviet science institutions?

Let’s return to Russia to see what an alternative strategy might be and its learning curve lessons for emerging countries to move up the innovation chain.

tomer ready and advanced enough for VC investment. Contrary to conventional wisdom, venture capitalists rarely invest in R&D (see box 2).

Our findings disprove the notion that Russian institutes and SMEs have great technologies, but investors are blind to the potential. No, what institutes & SMEs have are great ideas, but customers buy products not concepts, and investors invest in deals, not conceptual stage ideas.

Returning to Figure 1, 52% of the technologies were rejected due to poor descriptions of the value of the idea, inconclusive performance data and competitive benchmarking. Many ideas appear interesting and worth a second look if only reliable performance data was available. Rejection was not due to lack of intellec-tual property (IP), business plans, management or capi-tal markets; typical reasons given as why so few VC technology investments are made in the emerging mar-kets.

Good test data is essential to prove performance bene-fits. Once an SME decides to compete in technology markets, it positions itself against global competitors, many with closer and deeper access to customers and a customer orientation that provides buyers with the information they require to make purchase decisions.

Box 2. What does VC invest in?

Money, innovation and hard work are the forces that drive entrepreneurship forward. Witness the super profits earned by the founders and investors in Skype, the VoIP telephony company. Skype began operations in 2003; eBay acquired the (unprofitable) company in 2005 for $2.5 billion+, an astronomical return on $20 million invested by Skype investors.

Contrary to myth, venture capitalists fund only a fraction of innovation vs. the investments in R&D by governments ($100+ billion) and corporations ($200+ billion). In clean technology in 2006 for example, corporations invested $22 billion in R&D, governments $24 billion, and VC investors just $2 billion worldwide. [11]

80%-90% of the money invested by VC pays for infrastructure costs required for SME growth, not technology develop-ment. VC is medium-term money, to build the SME to a sufficient size until it can be sold three-seven years later to a corporate buyer or to public market investors.

The niche for VC exists because of historical practices and inefficiencies in the capital markets. Technology is IP and banks won’t lend unless tangible assets exist as collateral for a loan; the risks of start-up ventures require a higher inte-rest rate than what banks can charge due to usury laws (e.g., in the US) and what SMEs can afford to pay.

Historically an SME needs sales of $10 million, several years of operating history (best with profits) and a balance sheet of several million dollars to access the public equity markets. In the US for example only 4%-5% of US corporations have sales $10 million or more, so newly created and growing SMEs are squeezed into a high risk, but high financial return niche for a particular type of investor; the venture capitalist.

The venture capitalist raises money from financial institutions like pension funds, insurance companies and founda-tions. VC invests in growing industries; investing in growth is more profitable and easier than investing in a slow or no growth market. While some exceptions do exist (e.g., biotechnology), the job of VC is to pick and invest in the right indus-try, take the market risk and management’s ability to execute, not the technology risk.

Venture capital operates to the 2-6-2 rule of success; for every ten investments, two fail with all money invested lost, six generate a return equal to 1x or 2x of investment, and two are super winners (e.g., Skype) generating financial returns of 10x, 20x or even 100x of investment.


Box 2. Moving Up the Innovation Value Added Chain Small countries are at a disadvantage to larger ones in crea-ting knowledge based economies. Fewer technology custo-mers results in developers and investors applying their ener-gy, intellect and capital to problems and needs in big mar-kets. Yet within all countries, whether small or big, pockets of opportunities exist for SMEs to move up in the innovation value chain as the following three examples illustrate. Incremental Improvements Import substitution is only one aspect to building a supply chain and increasing local content by domestic SMEs. Ad-ding more technology to increase product functionality and user experience is another strategy to build more knowledge based SMEs. Donnelly Mirrors (DMI, now Donnelly Mirrors Magna) was a small family-held supplier of inside and outside automotive mirrors to the Big Three (Chrysler, Ford & General Motors). With revenues of $10 million, they were in a low tech, low valued segment of the business vs. suppliers of high value power train components (engines, transmissions) and other parts. Moreover DMI was headquartered in Holland, Michi-gan, out-of-sight, out-of-mind and geographically distant from their customers. In the 1980s, DMI developed new skills in photo-electronics, glass/plastic fabrication, coatings and plastic molding; engi-neering embarked on a program to add new product content to mirrors and cost reduce production. Technical staff incor-porated interior lighting and informational content to the mir-ror (through electronic sensors and microprocessor technolo-gy) that displays vehicle direction and temperature, both in-side the car and on the street. Not satisfied with just increasing driver convenience, engi-neering innovated in other directions; electro-chromic glass that keeps exterior mirrors clear from ice, rain, snow and fog, a value-added convenience that improved road safety and security for all. Improvements in small motor performance resulted in exterior mirror assemblies so drivers could move the position of outside mirrors from inside the car without taking their eyes off the road. Over a ten year period these and other innovations led to an increase in sales to over US$300 million for DMI even as US domestic production slid to new lows as Japanese imports captured the hearts and pocketbooks of US consumers. Entrepreneurial Resourcefulness Backward thinking as a holdover of the Soviet legacy restric-ted growth in countries under their influence, even after the fall of the Berlin War, independence of the Baltics and free-dom for states of the Former Warsaw Pact. Where some saw only bureaucracy and limited choices, others saw opportuni-ty. Riga, Latvia based SAF Tehnika was founded in the early 1990s by an engineer frustrated with the six year wait for a telephone line from the local telephone monopoly. Using his engineering talents learned at a former Soviet institute, he invented a microwave link that bypassed the local telecom. He provided dial tone to his neighbors through his innovation and later raised money from them, friends and family to offer his solutions to others. Go forward fifteen years and SAF Tehnika now sells its tele-com equipment in over forty (40) countries with its equity publicly traded on Riga’s stock exchange since 2004.

Make Solutions from Problems New innovations provide a set of benefits for customers and users. Yet all technologies have problems or inconvenien-ces that set the stage for the creation of new SMEs, for new and more innovation. Dr. Alejandro Zaffaroni, from Montevideo, Uruguay, earned his Ph.D. in biochemistry at the University of Rochester, the USA. Writing his dissertation on steroids, he started Syntex in Mexico City near a jungle where the plants grew for the raw material used in steroid production. The company grew rapidly as doctors and patents adopted their drugs for contraceptive and dermatological needs. Pharmaceuticals at that time were delivered into the bloodstream by either inoculations or pills. While effective, their rapid release caused highs and lows of drug concen-tration in the bloodstream and steroids were no exception. Turning his attention to the side-effects of steroids, Dr. Zaf-faroni developed new solutions to more slowly deliver drugs into the body through skin patches and time release pills. He launched Alza to manufacture and sell these products to market, innovations that spawned new thinking in drug deli-very techniques. Turn Personal Passion into Money [12]

Ole Evinrude’s family immigrated to the US and he learned about machinery and mechanics by working on the family farm, working in factories and starting his own one-man motor shop. At a picnic on a hot day on the island of a Wis-consin lake, Ole’s future wife Bess asked for some ice cream. The Norwegian made the three kilometer journey in his boat and oars, but when he returned, the ice cream had melted. Thinking that a better way existed, Ole created a lightweight, detachable motor that could power small boats. He started a new company two years after making his 1st test, raised seed capital from a tugboat operator Chris Meyer, and ob-tained a patent in 1911, four years after his 1st prototype. Soon thereafter the company employed hundreds of em-ployees with the advertising motto: “Don't row! Throw the oars away! Use an Evinrude motor.” Ole was forced from the business due to his wife’s poor health and a bad relationship with Chris. In 1912, Ole be-gan work on what would be the flywheel magneto, a major innovation that made starting and operating outboard mo-tors easier for customers. In 1919, Ole showed Mr. Meyer drawings for a new lightweight motor, which Meyer rejected, a major mistake. In 1921 Bess and Ole Evinrude started a new company to market new light twin outboards, which became the industry standard, generating billions of dollars of revenue, making the lives of millions easier, more fun, and needless to say, helping sell more ice cream. Information without Borders [13] Larry Page and Sergey Brin initially disliked one another when they first met at Stanford, but they found common ground in solving one of computing’s biggest challenges: retrieving relevant information from a massive set of data. In 1996, a year after their 1st meeting, poor, begging and borrowing university computers to build a network, their unique approach to link analysis was building a reputa-tion. In 1998, they used credit cards to purchase a tera-byte of memory to build their first data center in Larry’s dorm room. Despite dotcom fever, they had little interest in building a company of their own, but instead, to license the technology.

Overlooked Opportunities in the Domestic Sector

While few Russian innovations have GameChanging qua-lities for international buyers, others (Figure 2) have va-lue in domestic E&P. Most were rejected as their techno-logies are behind those offered by international competi-tors like Schlumberger and Halliburton. But a few are low cost solutions that give customers (domestic and international oil companies) almost world class perfor-mance, but with lower prices compared to Western com-petitors. Low cost technologies attract price sensitive customers.

What makes this set of opportunities appealing is that they represent an alternative to pursuing a GameChan-ging strategy. Instead of trying to outperform internatio-nal competitors on all fronts, one can build a locally com-petitive SME technology sector for domestic use. Once this base is established, invest new resources to develop their international capabilities for global marketing.

Several countries took a domestic approach to building more knowledge based content as the following exam-ples illustrate:

Years ago the Israeli Government mandated that all Israeli homes have solar water heaters which resulted in an entire ecosystem of local manufacturers and sup-pliers. With growing interest in alternative energy for the 21st century, dozens of new Israeli start-ups are levera-ging their solar expertise and innovating in photovoltaic cells, solar power, heating and lighting for global needs.

Estonia is one of the most wired countries in the world, due to the rapid adoption of technology by citizens and proactive support from the Government. Legislators in-troduced a number of reforms to bring Estonia into the information age, which stimulated innovation and tech-nology development from the private sector.

E-school is an early stage company that sells a software solution that almost all schools in Estonia have adopted. Teachers send grades and attendance records to parent-s’ computers or mobile phones; they receive an SMS if their child is absent from school. As this product is adop-ted in Estonia, opportunities open for E-school to sell to regional and global markets since its value is validated by Estonian users.

New Zealand proves that even the agriculture industry benefits from more technology and knowledge creation. New Zealand’s transition strategy from low tech to high tech is illustrative of how a domestic focus created a technology SME industry.

In the mid 1990s, New Zealand government planners invested in biotechnology R&D to create more flavorful and different varieties of wine, cows and lamb with more meat and less fat. Their focus was on new solutions for domestic needs in agriculture and animal husbandry, not global biotechnology where New Zealand had little com-parative advantage. Five years later, government initiati-ves yielded results and VC investors financed the com-mercialization of New Zealand SME innovations.

Today New Zealand meat and wine are found in Australia, Europe, Japan, Russia and the US. Their SMEs sell tech-nology products and services to Australian, European and US wine producers and animal growers, truly a win-win for all.

Opportunities sometimes develop in the use of underutili-zed, domestic human capital to serve local and interna-tional markets and build a knowledge based service sec-tor. In 2005 CzechInvest, the Czech Republic’s business development agency and Cadence Design Systems, the US based electronic design house, formed ChipInvest at the Brno University of Technology. The center provides engineering talent from the CEE to chip companies worl-dwide.


Unable to interest the major Internet portals, Larry and Sergey decided to commercialize the technology themsel-ves. All they needed was a little cash. So they wrote a bu-siness plan, put their Ph.D. plans on hold, and went loo-king for money. A Stanford friend introduced them to Andy Bechtolsheim, an angel investor and one of the founders of Sun Microsystems. Impressed with the demonstration but short of time he said: “Instead of us discussing all the details, why don't I just write you a check?' It was made out to Google Inc. for $100,000.” The investment created a small problem. There no legal entity known as ‘Google Inc.,’ and no way to cash the check. It sat for a few weeks until the two organized a corporation and raised a $1 million on the testimony of Andy’s investment from family, friends and acquaintances.

In September 1998 three years after Sergey and Larry first met, Google Inc., opened its doors for business. The door came with a remote control, as it was attached to the garage of a friend’s house who rented space to the new corporation. The office offered several big advantages, including a washer and dryer and a hot tub. It also had a parking space for the first employee hired: Craig Silverstein, now Google’s director of technology.

Sources: Excerpts from ‘The Story of Evinrude, http://www.tecsoc.org/pubs/history/2002/jul12.htm, http://www.boatmotors.com/outboard/evinrude/; “Google Histo-ry.” http://www.google.com/corporate/history.html

ChipInvest is focused on global needs for engineering skills in analog design, which converts temperature, light and sound into the 1s and 0s needed for digital processing. In the 1980’s the digital revolution shifted work from analog to digital with analog relegated to Eu-rope due to its strength to serve its customers in the automotive and telecom with mixed signal designs.

ChipInvest is making use of knowledge learned under Soviet control, talent in short supply now. Closed Soviet and E. European universities emphasized analog skills as they were cut off from the global race to shrink cir-cuits. With limited resources and money, engineers had to find ways to make due with what they had. That skill is in high demand now as cost pressures force work out of W. Europe and transform ChipInvest into a microelec-tronics R&D magnet for global and domestic customers.

The GoForward Plan in Technology and Knowledge Crea-tion

Given higher probabilities of growing a locally competi-tive technology sector, a GoForward strategy consists of building technology platforms in and around domestic assets rather than diversifying resources away from home market advantages like natural resources, energy and commodities. And if overlooked potential exists in technology for the domestic sector, then how does one do a better job in identifying opportunities early, to nur-ture them into commercialization?

Action Item #1: Target Domestic Users First

SMEs and governments cite the low absorption rate of technology by domestic users as the reason to pursue a GameChanging innovation strategy for world markets. Yet every country has industries that are knowledge based; some are clusters formed around a particular industry while others exist from natural advantages.

The automobile industry is a technology cluster with excellent growth in Latin America, the CEE and the CIS as Ford, General Motors, Toyota, VW, Peugeot and others increase production in Argentina, Brazil, the Czech Republic, Hungary, Russia and Slovakia to meet customer demand. These auto multinationals need to build the domestic auto component supply chain to a Western equivalent to meet their business plans just as Shell, Chevron, LUKoil, KazMunaiGaz, PETRONAS, Petro-bras, Pemex and others seek more and better oil field service suppliers in the CIS, SE Asia and Latin America.


Both industries struggle to localize more local purchasing and satisfy local content commitments. “The local car industry ‘is handicapped by the quality of local suppliers, who are far below world standards,’ said Carl Hahn, chairman emeritus of Volkswagen. ‘That’s the most chal-lenging part for our team’ Skoda chairman Detlef Wittig said.” [6] In Argentina, the auto parts sector attracted new firms and investment of $1.75 billion, but the num-ber of domestic suppliers fell from 1,200 to 400; [7] their demise was due to a lack of product quality, invest-ment and technology.

Yet the GoForward plans of many governments are to build knowledge based sectors like IT, bio & nanotechno-logy, etc., but not technology investment for domestic needs in auto components, oil field services, mineral ex-traction/processing and alternative fuels; sectors with immediate payoffs to catalyze a chain reaction in domes-tic technology absorption.

Israel is well known as a powerhouse of GameChanging technologies for global markets. What are less known are the innovations of Israelis for domestic use, e.g., so-lutions for clean and pure water. Israel could have had a water shortage as its population surged from less than one million in 1948 to more than seven million in 2006. [10] But it didn’t due to actions of the Government in technology.

To provide the fresh water needed for life, the Israeli Gov-ernment sponsored R&D in low pressure irrigation sys-tems (for agriculture), rain harvesting, wastewater treat-ment and desalination. The private sector built on these foundations to innovate water security/management, on-site biological treatment of solid waste, medical waste and biologically contaminated materials to name a few. While the focus was and is on domestic demand, pure water needs from global customers stimulated the crea-

When all fails, some creativity and initiative may be necessary

tion of an new Israeli export sector for clean water tech-nology that now exceeds $800 million/year.

With a proposed new government investment of $160 million over the next five years, Israeli firms are projec-ted to increase exports of clean water technology to $2 billion by 2010, $5 billion by 2015 and $10 billion by 2020 in a world water market estimated at $400 billion a year with growth of 7%/year. [9] With citizens of Pla-net Earth forecasted to have a 35% water shortfall over the next 15 years, luck (opportunity + preparation) and timing again work to the favor of Israeli SMEs and their VC investors.

Other SME development approaches are possible to build technology sectors for domestic needs, when sin-gle technology hubs are less obvious, e.g., in logistics, where multiple technologies intersect. For instance, Latvia sits on the Baltic Sea with new technologies re-quired in IT, warehousing and transportation to grow a nascent logistics platform into a regional distribution powerhouse.

Russian and international corporations are establishing back office administrative centers in Siberia, Budapest, Tallinn and other cities to escape high cost Moscow thereby stimulating new clusters and VC investment opportunities. The city of Kirov a small Russian regio-nal city with a population of about 500,000 and 1,200 kilometers from Moscow is funding bio-clusters to ma-nufacture creams, lotions and emollients used in the domestic production of everyday cosmetics.

Action Item #2: Provide ‘Mini Grants’ to Document Bu-siness Opportunities

Once domestic industry technology hubs are identified, fund a ‘mini-grant’ program to define the business op-portunity for proposed technologies. A mini-grant of $3,000-$10,000 is not intended to fund an entire busi-ness plan, but a 3-4 page document detailing the tech-nology’s potential.

Action Item #3: Capitalize a ‘Proof of Concept’ Fund

Commercialization of new technology starts with R&D and product development to demonstrate ‘proof of concept’ and the value of novel ideas. SMEs are only able to approach customers and investors when they clearly present technology strengths and weaknesses, conducted through a comprehensive analysis under different user conditions.

A ‘proof of concept fund’ finances the costs of testing a technology and benchmarking it to direct competitors, alternatives or substitutes. To invest capital wisely, man-date that developers and SMEs benchmark the technolo-gy early and often to products/services that buyers pur-chase from domestic or international competitors.

Action Item #4: Inventory SME/Institute Technologies and Publish as a Database

Provide an Organizational Service (OS) that gives custo-mers and investors the information needed to consider technology from your country:

SMEs/institutes organized by technology, product & mar-ket segment, with full contact information

Benefits of the technology with performance & cost ben-chmarked against domestic and international competi-tors with data generated to international testing stan-dards

Stage of development, meaning R&D, product develop-ment, alpha or beta testing

Product development plan with timetable & milestone inflection points, line item budgets

Patents issued or filed, by country, date and number, & competing technologies similar in form or function

Publish this information as an Internet database and searchable by keywords like technology or market.

Action Item #5: Establish an IP Facility to Protect Your Country’s Intellectual Assets

The IP Facility pays legal costs of filing domestic or inter-national patents with costs reimbursed through revenues generated from product sales. Royalty repayments reple-nish the Facility so it becomes a revolving instrument with a one-time investment.

Action Item #6: Offer Targeted Business Development Support

Innovations too often sit on the shelf since scientists lack the knowledge to make the business case for the techno-logy, the energy and drive to move them into the market. Many scientists and (some) development stage SMEs lack the skills to make the transition from development to commercialization and growth.


Establish a business development office which actively ‘scouts’ for opportunities in the SME community and academia. This office identifies and develops projects for financing by the ‘mini-grant’ program and ‘proof of concept’ fund, and helps sell innovations from acade-mia/SMEs to customers.

One responsibility of the business development office is to identify IP early in the development cycle and work with legal council to protect it. Scientists and business-men are rightfully proud when they create new innova-tions. Yet they sometimes announce their solutions in the public domain before protecting them and inadver-tently weaken their legal rights. Business developers


must educate scientists and SME managers to the issues of IP, what can and can’t be said in public.

Action Item #7: Organize R&D & Supply Chain Competi-tions for Users of Technology

R&D competitions are used in combination with VC fo-rums or a substitute when deal flow is too scarce to at-tract VC investors. R&D competitions present technolo-gy, to generate interaction between technology develo-pers and the R&D staff from corporations. R&D competi-tions are organized in areas like nanotechnology, alterna-tive energy, green technology, engineered materials and biotechnology as examples. The audience is corpora-

Box 3. Integrating Multinationals into the Innovation Ecosys-tem

Corporations are entering a 3rd stage of evolution, a change that bodes well for emerging market SMEs and their govern-ments. The 1st stage was the 19th century’s ‘international model’ when corporations established sales offices in fo-reign countries, with minimal economic impact on host coun-tries.

When I worked at Ford Motor Company in the 1970s, it grew by replicating itself with small versions of ‘me-toos’ in foreign countries, each with their own management, manufacturing, logistics, purchasing, HR and supply chain operations and staff. This 2nd stage is being replaced by ‘globally integra-ted enterprises,’ executing their strategies, operations and investments where work is best done.

Instead of having separate supply chains for different mar-kets, 3rd stage global enterprises have an international foot-print with a single supply chain. Such innovation means new opportunities flowing to countries and SMEs with the right skills and a focus on expertise, openness and/or cost.

Cheap is not the only strategy for growth; if it were, pharma-ceutical multinationals would not be building new R&D cen-ters in Europe, Japanese auto firms would not be adding manufacturing capacity in the US and companies like IBM would not be conducting R&D in Bangalore and operating their financing back office in Rio De Janeiro.

Internationalization of the supply chain benefits all; it ena-bles emerging market SMEs to learn from global players, accelerating skill transfer and knowledge creation to start locally and grow globally, it enables multinationals to capita-lize on local resources and talent.

Multinationals hunt for technologies and ideas independent of their origin, and they are able to benchmark technologies from one country to another, to help developers identify strengths and weaknesses of their technology to global com-petitors. Others have a strategic priority to integrate techno-logy as supply chain linkages, thereby stimulating innova-tion, growth and job creation in ways such as:

1.) to be the technology platform that helps SMEs mo-del and scale their solutions in advance of custo-mer demands

2.) to reduce development time and get to market quic-kly

3.) to lower investment risk and help SMEs secure fun-ding

4.) to enable the jump-start of sales

5.) to expand the market reach of SMEs by integrating them into corporate & international business ecosys-tems.

Untapped potential exists in many developing countries. So how might a globally integrated enterprise increase its contribution to emerging country innovation ecosystems and benefit itself at the same time? Let me make this sugges-tion.

Mix and match domestic and foreign technology to create new business models—Western companies frequently learn that their solutions are better but too expensive for domestic buyers when they sell to local customers. Consequently their products are confined to niche applications with limited revenue potential.

In order to reduce cost, combine domestic technology with complementary technology and people skills from the West. For the measurement of pressure and temperature in oil wells, the price of a distributed pressure/temperature sys-tem from a UK- based SME was reduced by 20% thanks to a Russian SME innovation in fiber optics. This cost reduction expanded sales to oil companies operating in the CIS and abroad.

Linking these two companies generated other benefits. It accelerated commercialization for the Russian counterparty since it lacks the international sales, distribution and service networks of the foreign SME. This supply chain partnership builds their international reputation and demonstrates their dependability as the prelude to selling directly to end users in oil producing regions of the Middle East and North Africa.

Governments not need start from scratch when it strives to integrate the domestic economy into the global knowledge economy. Instead it can tap Western ideas, management and system skills and link them to domestic counterparties—institutes and SME s—through appropriate economic incenti-ves and by investing in the education and the technical skills of its people.

tions and corporate venture capitalists, not financial VC investors.

Attracting large corporations to R&D competitions has many benefits. They are able to invest in promising technologies, guide development with customer feed-back, speed commercialization and help access oppor-tunities in the supply chain (box 3).

The venture capital arms of multinationals are especial-ly helpful to scale up the innovation ecosystem. They create leverage in the market like Intel Capital’s dedica-ted $50 million VC country fund to finance Brazilian technology, and Microsoft’s Innovation Centers, stimu-lating interaction in the infrastructure resulting in more innovation and more Brazilian software startups being funded. And they add-value in ways that financial ven-ture capitalist can’t.

Corporate VCs take technology risks by investing VC in the R&D of young SMEs, and invest directly in IP with technology right-of-use, a structure that accelerates the diffusion of technology to markets and customers. They also provide access to corporate R&D budgets for the funding of technologies at their early stages of de-velopment, before financial VCs are able or willing to invest.

Corporations help SMEs apply their technology to custo-mer needs. As Esther Dyson, an investor in emerging market startups remarked: “One thing that the [emerging] market requires is a more demanding cus-tomer base. They need to become better buyers and users. They have all the necessary technical skills, but they don’t have the business experience to apply the technology as well as they should.”

Concluding Remarks: The Role of Governments in Tech-nology Creation

Knowledge-based and entrepreneurial economies can’t happen without the political will and investment of fe-deral and national governments. Knowledge creation touches on so many of their duties like education, pu-blic investment in basic and applied R&D, economic incentives to invest in private R&D, innovation, trade and investment policies and the enabling environment, just to name a few.

Achieving political consensus on the mission and the means to fund the execution of this facilitator role can be a challenge. Therefore, some governments take in-termediate and smaller steps that are achievable and realistic in the move towards knowledge creation.

In the case of Israel, the Government legislated to save energy and reduce dependence on foreign hydrocarbons, to increase its security in an insecure region of the world. The Estonia Government acted to speed its integration into the global economy after decades of being a closed society under Soviet domination. The Government of New Zealand funded R&D for agricultural applications to improve domestic products. Initiatives of all three set the stage for new knowledge creation by the private sec-tor; start-ups formed to satisfy market needs, provide more innovation and creativity with positive effects far beyond their original missions.

African governments want more knowledge creation for their countries and citizens too. Yet the development of home-grown African technologies is unlikely to happen until more of the building blocks of an innovation ecosys-tem are present, e.g., research institutes collaborating with like-minded international universities in collabora-tive research, doing contract research for large and small companies alike, and grant making schemes to provide the R&D financing that SMEs need to upgrade their tech-nology and technical skills to compete for supply chain contracts as examples.

Small but measurable steps are being taken by African entrepreneurs themselves to integrate into the global community. Export oriented flower suppliers imported foreign technologies, adopted new ideas and business processes to improve yield, reduce cost and the time to get fresh flowers from the field into the vases of custo-mers around the world. Domestic SMEs in agriculture, natural resources and minerals invested donor monies to adopt best practices in production and processing to win more supply contracts and used profits to fund new product development programs; all with the intention of dominating small, local markets. Such efforts build a reputation of quality products and services with the relia-bility, performance and cost standards that global custo-mers expect.

About the paper and author

1This article is an adaptation of the author’s article that appeared in the July/August 2007 edition of the Harvard Business Review (Russian edition) and the November 2007 issue HBR, Hungarian edition.


2Venture capitalist Thomas D. Nastas is president of Innovative Ventures Inc., the USA & Russia (www.IVIpe.com, [email protected]). He also organized three funds in Africa for the World Bank/IFC. Mr. Nastas is also Instructor of Marketing, American Institute of Business and Economic College, Moscow.

Endnotes and references

1. National Venture Capital Association, Arlington, Va., (www.nvca.org) & Global Insight Inc., Waltham, MA., (www.globalinsight.com)

2. Venture Economics, Boston, MA, (http://w w w . t h o m s o n . c o m / s o l u t i o n s / f i n a n c i a l /privateequity), National Venture Capital Association, Arlington, VA., (www.nvca.org), ThinkEquity Partners (http://www.thinkequity.com) & CapitalIQ (http://www.capitaliq.com)

3. Blog posting of Dan’l Lewin titled ‘Innovation vs. In-vention,’ 16 November 2005, (http://alwayson.goingon.com/permalink/post/1508). Dan is VP, Net Business Development, Microsoft

4. Blog posting of Dan’l Lewin titled ‘Travels with Dan’l. Part 1, The Perception & Reality of Innovation A b r o a d , ’ 8 F e b . , 2 0 0 6 , h t t p : / /alwayson.goingon.com/permalink/post/1510

5. Source: Society of Petroleum Engineers Web site (www.spe.org), Oil & Gas Basics

6. ‘A Lot of Car Plants but not Enough Parts,’ by Anna Smolchenko, Moscow Times, page 1, 30 March 2007

7. h t t p : / / 2 0 9 . 8 5 . 1 2 9 . 1 0 4 / s e a r c h ?q=cache:pRVcnI8zP3YJ:www.brazil .ox.ac.uk/confreports/Conf%2520Report%2520%2520Auto%2 5 2 0 I n d u s t r y % 2 5 2 0 R e f o r m %252015.11.04.pdf+Developments+in+Auto+Sector+in+Brazil&hl=en&ct=clnk&cd=17

8. ‘Innovations in Water Solutions: Where Israeli Com-panies are Making Waves,’ Israeli Venture Capital Journal, May 2007

9. Ibid, Israeli Venture Capital Journal, May 2007

10.See web site ifise.unipv.it/Convegno/Evolution%20of%20th%20-%20Kaufman.ppt for a review of the Yozma scheme

11.‘Global Spending on Cleantech R&D to Rise,’ by An-drew Quong, Red Herring, 31 May 2007 Red Herring


12. Excerpted from ‘The Story of Evinrude, http://www.tecsoc.org/pubs/history/2002/jul12.htm, and http://www.boatmotors.com/outboard/evinrude/

13. Excerpted from “Google History.” http://www.google.com/corporate/history.html

Abstract

This paper summarizes the main findings, arguments and policy recommendations of UNCTAD’s Least Devel-oped Countries Report 2007: Knowledge, Technologi-cal Learning and Innovation of Development. It shows that although most of the least developed countries (LDCs) are closely integrated into the global economy through trade and foreign direct investment, their level of technological development is very low and the capa-bilities of their domestic firm and farms to acquire and effectively use technology is very weak. The current situation is one in which there is liberalization without technological learning and global integration without innovation.

In a situation where international markets are not work-ing to support the international diffusion of technology, there is a strong case for ODA to support technological development. But in practice aid for science, technol-ogy and innovation (STI) in LDCs is very weak both in quantitative and qualitative terms. In addition, many LDCs are being adversely affected by emigration of skilled personnel, and some asymmetries within the international IPR regime can discourage technological catch-up in LDCs. Nevertheless there are constructive and pragmatic policies which can be adopted to sup-port the promotion of STI for development in the LDCs. The paper summarizes the current situation and makes some key practical policy proposals.

Introduction

Since 2000, UNCTAD has published a series of flagship Least Developed Countries Reports which are devoted to examining how development can be started and sus-tained in the poorest countries in the world (UNCTAD 2000; 2002; 2004; 2006; and 2007). The Reports are based on the view that much development thinking is derived from, and oriented to, the conditions of more advanced developing countries and that there is a need for deeper analysis of the challenge of development in

very poor countries. Together, these reports have under-taken a critical assessment of current national and inter-national policies to promote development and poverty reduction in the least developed countries, and also pro-posed constructive and pragmatic policy alternatives.

The Reports have elaborated a production- and employ-ment-centered approach to development and poverty reduction which is distinct from both the World Bank and IMF approach to economic reform and also UNDP’s hu-man development approach. This approach is set out most fully in The Least Developed Countries Report 2006: Developing Productive Capacities, and it is deep-ened in The Least Developed Countries Report 2007: Knowledge, Learning and Innovation for Development. The present paper provides a summary of the main find-ings, arguments and policy recommendations of the lat-ter Report, which was published in July 2007.

The overall argument of the Report is that to escape the current trap of poverty, underdevelopment and margin-alization, the governments of the least developed coun-tries (LDCs) and their development partners need to adopt new policies designed to narrow the technology


Knowledge, Technological Learning and Innovation for Development: The Findings, Arguments and Recommendations of UNCTAD’s Least

Developed Countries Report 2007

Charles Gore, Zeljka Kozul-Wright and Rolf Traeger *

Moving up the technological ladder?

gap between themselves and the rest of the world and to increase the knowledge-intensity of their economies. This argument is based on three propositions: 1. Science, technology and innovation (STI) matter even in the poor-est countries, 2. Current policies to promote STI in LDCs are unsatisfactory and 3. There are constructive and prag-matic alternative policies to promote STI available to LDC governments and their development partners.

This paper summarizes the main findings, arguments and recommendations of the Report in relation to each of these propositions. Attention is paid to both national poli-cies and international policies, with specific attention to the weaknesses of the current policy configuration and possible alternatives in the areas of: (i) aid for STI, (ii) the intellectual property rights (IPR) regime, and (iii) the brain drain.

STI Matters Even in the Poorest Countries

The Report is founded on the view that sustained eco-nomic growth and poverty reduction in the LDCs requires the expansion of their productive capacities in a way in which the population of working age becomes more and more fully and productively employed. The development of productive capacities of a country occurs through two major processes – capital accumulation and technologi-cal change – which in turn lead to structural change. Capi-tal accumulation and technological change are closely interrelated processes but each requires the mobilization and application of different key elements. On the one hand, capital accumulation requires the mobilization and investment of financial resources. On the other hand, technological change requires the mobilization and appli-cation of knowledge. Finance and knowledge are the key ingredients for the development of productive capacities.

Finance and knowledge are inseparable twins in success-ful processes of development. But in national and interna-tional policy debates the spotlight has usually been on finance rather than knowledge. Knowledge is the ne-glected sibling in national and international development policy. Around the notion of financing development, there is a common vocabulary and accepted terminology. But in policy terms, what does it mean to mobilize and invest in knowledge for development?

One focus of attention might be investment in education. Another focus of attention may be investment in informa-tion and telecommunications infrastructure and bridging the digital divide. Both of these issues are certainly impor-


tant. But in the LDC Report 2007, the focus is on how technological change can happen in LDCs, and more particularly how knowledge is commercially applied in production by firms and farms.

For poor developing countries, innovation occurs through technological learning. LDCs cannot be ex-pected to be at the global frontiers of technology. But innovation occurs when enterprises introduce products which are new to them or to the country. Such a form of innovation – which differs from the commercial ap-plication of inventions which are new to the world – depends on enterprises learning to master, adapt and improve technologies that already exist in more tech-nologically advanced countries.

This is not a passive process but an active process of learning, assimilation and creative imitation in which physical technologies and skills concerning their use, as well as associated organizational routines, are ap-plied and adapted in new contexts. Such adaptation often requires a blending of foreign and local knowl-edge in new ways. This is a process in which the ab-sorptive capabilities of firms and farms, and also of the domestic knowledge systems within which they are embedded, are critical. Such absorptive capabilities encompass not simply the ability to access knowledge, but also the ability to assimilate and use it in local con-ditions.

This type of innovation is not a matter of hi-tech pro-duction. It involves rather the incremental introduction of new ways of doing things by firms and farms, as well as their introduction of new products and their target-ing new markets. It is this myriad of small and large innovative acts which underlie improved productivity, increase local value-added, increased competitive-ness, better quality products and the introduction of new activities into an economy.

It is through these innovative acts by firms and farms that LDC economies can move away from strong de-pendence on primary commodities and low-skill manu-factures.

It is through these innovative acts that substantial pov-erty reduction will occur – though the relationship be-tween technological change and poverty reduction is complex depending on the labour-intensity of technol-ogy and also on the economy-wide processes of crea-

tive destruction in which employment opportunities decline in some sectors whilst they expand in others through technological change.

It is through these innovative acts that LDCs will re-verse their marginalization in the global economy and start to achieve catch-up growth. The marginalization of the LDCs ultimately reflects the fact they are falling behind other countries technologically. Unless LDC gov-ernments and their development partners adopt poli-cies which help stimulate technological catch-up they will continue to fall behind.

Weaknesses of Current National and International Poli-cies

When one looks at where LDCs currently stand in terms of their level of technological development and the ca-pabilities of their domestic firm and farms to acquire and effectively use technology, the situation is depress-ing. Their domestic knowledge systems which enable the creation, accumulation, use and sharing of knowl-edge are also ineffective and divorced from production needs. Like the domestic financial systems of which they are a key counterpart, they are dualistic –separated into a traditional and modern knowledge system. Moreover, they are weakly integrated with the rest of the world. The state of technological underdevel-opment of the LDCs is an expected pattern as weak technological development and economic underdevel-opment go hand in hand. But what is perhaps remark-able in the current situation – and also perpetuating the current situation – is the failure of both domestic and international policy to address the problem.

This is particularly paradoxical as a key insight in the understanding of processes of economic growth in the last 25 years – perhaps the key insight – is that techno-logical change is central. But neither LDC governments nor their development partners are seriously drawing policy implications from this.

For the LDCs this is a long-standing neglect. It is worth noting in this regard that the year 2007 is the 25th anni-versary of the global introduction of structural adjust-ment programmes. Some LDCs began implementing these programmes right back in 1982, but since the late 1980s they have been particularly intensely imple-mented by the majority of the LDCs. Active promotion of technological change has not been part of these poli-cies. Indeed SAPs often sought to dismantle the institu-

tions and incentives of active agricultural and industrial development policies which – though certainly often flawed in design - were at the heart of developmentalism of the 1960s and 1970s and which usually involved the promo-tion of technological change as a central element.

Since 2000, SAPs have been replaced by PRSPs. But the new poverty reduction strategies continue to have the clas-sic SAP recipe of stabilization, liberalization and privatiza-tion at their heart, with the addition of social elements. Technological change has not been conceptualized as criti-cal to processes of poverty reduction. Thus, for example, there is no chapter of the World Bank PRSP Sourcebook on this issue. Moreover, only 4 out of a sample of 11 recent PRSPs undertaken in LDCs include science and technology as a priority policy for poverty reduction. The latest poverty reduction strategies are all committed to economic growth as a basis for poverty reduction. But essentially they ignore one of the key sources of economic growth – technological change – and the role of national policy in promoting such change in a way that enables both economic growth and poverty reduction to occur.

The present national policy configuration is based on a flawed understanding of how technological progress occurs in follower countries. The basic assumption is that open-ness to trade and investment, coupled with investment in basic formal education and more lately also investment in ICT infrastructure (“closing the digital divide”), will automati-cally lead to transfer of technology. But in practice, this has not worked. The Report provides evidence to show that this underlying assumption is false. Access to technology is not equivalent to its effective acquisition and use. International transfers of technology to LDCs are not occurring through international market linkages.

The current situation is one in which there is liberalization without technological learning and global integration with-out innovation. LDCs are already highly integrated to the world economy in terms of trade and investment flows. Ex-ports and imports constitute 50 per cent of GDP, and FDI is equivalent to almost one fifth of gross fixed capital forma-tion. But strong market integration through trade and FDI is associated with weak technology acquisition in LDCs and also weak development of the capabilities required to facili-tate the effective use of technology diffusion.

Some fact and figures from the Report can show this.

⇒ First, LDC investment in imported machinery and equip-ment -- which is a major channel for the arrival of new


technology -- is very low. In 2000-2005, LDC capital goods imports corresponded to 6 per cent of GDP, only half the level for ODCs.

⇒ Second, participation in international value chains -- in which products go through numerous steps from raw materials to finished forms -- are doing do little to infuse technology into LDCs. Processes of export upgrading have various dimensions. But an analysis of 24 value chains in which LDC exports play a role shows that export upgrading in the sense of in-creased processing of raw material before export has only occurred in 9 of them since the 1990s, involving just 18% of total merchandise exports from LDCs.

⇒ Technological "spillovers" to domestic firms are ex-pected from foreign direct investment (FDI) in LDCs. But in African LDCs, most FDI is focused on mineral extraction, and spillover into domestic firms is lim-ited. In Asian LDCs, case study evidence shows that the rapid growth in FDI in garment manufacturing has not led to a corresponding development of do-mestic firms' technological capabilities.

⇒ Technology licensing -- payments for the right to un-dertake activities protected by patents -- in LDCs is very weak and has been stagnant since the 1990s. On a per capita basis, it is 80 times higher in other developing countries than in LDCs.

In the present situation where international markets are not working to support the international diffusion and assimilation of technology, there is a strong case for official development (ODA) to be used to ensure through public action that technological transfers occur and do-mestic capabilities are developed so that technology can be acquired and effectively used. It is likely that there needs to be a minimum threshold level of domes-tic technological competences and capabilities in place before market forces start facilitating international tech-nology flows. But in practice aid for STI is very weak both in quantitative and qualitative terms.

The quantitative situation is difficult to portray because an aspect of donors’ failure to recognize the relevance of STI is that they do not monitor aid for STI. But focus-ing on just two categories – aid for research and aid for advanced skills – one finds that these activities re-ceive only 3.6 per cent of total aid to LDCs. Moreover, most of it goes to higher education. There is a particular stark failure to support technological development within firms and farms, which are the places where technological change occurs. Aid commitments for agri-


cultural research, extension and education within LDCs are actually falling. Aid for industrial technological devel-opment in LDCs – a category which includes industrial standards, quality management, metrology, testing, ac-credition and certification – is even more insignificant than for agricultural development. Technological upgrad-ing is also generally overlooked within the Aid for Trade initiative which is presently being developed and also within the Integrated Framework for LDCs, with the issue of building supply-side capacities being conceptualized more in terms of the provision of physical infrastructure.

The quality of the aid for STI which is actually provided to LDCs is also unsatisfactory. Aid projects to deepen do-mestic STI capacity are disjointed rather than systemic, and STI policy capacity-building in LDCs ignored. Global linkage initiatives, such as international scientific coop-eration and business-to-business matchmaking schemes, tend to exclude LDCs. The provision of global and regional public goods in terms of scientific research is not sufficiently responsive to LDC needs.

Technical cooperation could be an important avenue for building domestic technological capabilities. Free-standing technical cooperation is actually defined as "the provision of resources aimed at the transfer of technical and managerial skills or of technology for the purpose of building up general national capacity". But in practice this transfer of skills and technology is going mainly to support social sectors and particularly governance, rather than productive sectors and the capabilities of private firms and farms. In fact, in 2003-2005 aid com-mitments to LDCs for technical cooperation in relation to governance were equivalent to $1.3 billion per year, whilst the total annual aid commitments to agricultural extension were $12 million.

On top of the omission of technological change as a cen-tral objective of the national policies of LDC governments and of the aid policies of their development partners, another weakness of the current policy configuration is that there are some disturbing asymmetries within the international IPR regime that can discourage technologi-cal catch-up in LDCs. This is important as innovation and technological learning in developing countries depend increasingly on the intellectual property rights (IPR) re-gime.

In this regard, LDCs theoretically have a window of op-portunity. They are subject to the same rules as other

countries but they have a breathing space in the sense that until 2013 they do not have to apply global IPR norms as mandated by the TRIPS Agreement of the World Trade Organization (WTO). However, in practice, this breathing-space has become more hypothetical than real. TRIPS-plus obligations are being written into free trade agreements, bilateral investment treaties, regional organizations and also into the terms of acces-sion of some LDCs to the World Trade Organization (as happened for example with Cambodia). This is of par-ticular concern because it is evident that creative imita-tion is at the heart of technological learning and innova-tion in circumstances of catch-up. This was how suc-cessful developing countries assimilated technology in the past and it is also critical for follower countries to catch-up now.

A case study of the impact of IPRs in Bangladesh was undertaken especially for the Report and it shows that the IPR regime is mainly benefiting TNCs and that do-mestic companies are not benefiting from it as innova-tion is not occurring through invention. Indeed many domestic firms are worried abut the negative impact of IPRs as many patents are being taken out by non-residents as a defensive monopolistic strategy and the cost of key inputs, such as seeds, is rising.

The final weakness of the current policy configuration is that there are no effective national or international ini-tiatives to deal with brain drain from LDCs. This has become a significant problem for many LDCs. The loss of skilled people is adversely affecting the quality for governance and also endangering the development of private sector technological capabilities. The available statistics show that brain drain is high and intensifying in many LDCs. In fact, 1 million out of 6.6 million peo-ple from LDCs with tertiary level education qualifica-tions are working in developed countries. Moreover 12 LDCs have lost more than one third of their qualified professionals to emigration in recent years.

Constructive and Pragmatic Proposals

3.1 National Policies

What can be done? The Report argues that there are constructive and pragmatic possibilities for new na-tional and international policies. Indeed, focusing on innovation and technological learning can potentially offer a new departure after 25 years of structural ad-justment programmes, either in their initial form or

adapted with social elements in the transformed me-dium of PRSPs.

In terms of national policies, the Report argues that LDC governments should integrate STI policies into their de-velopment strategies and poverty reduction strategies. Successful developing countries adopted technological catch-up with more advanced countries as a strategic goal and there is no reason why LDCs should not do like-wise. However, it will be necessary to adapt policies to the challenges of the earliest phases of catch-up.

The precise nature of the policies will depend on each country. But the Report argues that given the employ-ment transition they are experiencing, with an increasing number of persons seeking employment in cities, they should promote technological change in both agriculture and non-agricultural activities.

For agriculture, what is critical is the promotion of sci-ence-based agricultural productivity growth, particularly through a Green Revolution in basic staples. This will require increased investment in adaptive research and extension as part of a broad effort to promote agricul-tural development. This includes infrastructure invest-ment and improved marketing.

For non-agricultural activities, the key is to promote busi-ness formation and upgrade the core competences and technological capabilities of domestic firms. This will in-volve training and skills development in design and engi-neering as much as the encouragement of R&D. What matters in particular is to increase the absorptive capa-bilities of firms, i.e. their ability to search for and use technologies and information which are available else-where, and to blend them with their existing knowledge to improve their practices. For this, the improvement of the domestic knowledge systems - the networks connect-ing the users of knowledge (private enterprises) and the providers of knowledge, notably research institutes and technology centres - is also important, as well as the lev-erage of more learning from international linkages through FDI and global value-chains.

There are difficult implementation issues and the promo-tion of learning does not mean going back to old style industrial policy. But there will be need for providing in-centives to promote learning and innovation as these are risky activities. Moreover there is a need for a mix of hori-zontal measures to encourage innovative activities by


domestic firms as well as targeted measures which fos-ter innovation through dynamic linkage effects, such as the development of rural non-farm productive activities and also value-added production clusters associated with exploitation of natural resources.

3.2 International Policies

A critical aspect of technology issues is that they cannot be solely dealt with in a national context. They have na-tional and international dimensions and thus action by the development partners of LDCs is necessary, as is the creation of international arrangements which can enable rather than constrain innovation and technologi-cal learning. In this regard, the Report points to action that is required in three main areas: the IPR regime; brain drain; and knowledge aid.

3.2.1 The IPR Regime

The major recommendation of the Report in terms of the TRIPS Agreement of the WTO is that realistic dead-lines be established for compliance with global IPR norms. The Preamble to the TRIPS Agreement gives the LDCs a grace period on the grounds that this will allow them to establish a “sound and viable technological base”. But is it realistic to expect that this will occur by 2013. The Report argues that this deadline is arbitrary and thus the transitional period should last until the LDCs have achieved “a sound and viable technological base”.

On top of this the Report recommends that Article 66.2 of the TRIPS Agreement should be clarified and effec-tively operationalized. The Article foresees that devel-oped countries will grant incentives for the transfer of technology to LDCs. But as yet nothing has been done to make this a reality.

The Report also argues that technical assistance for LDCs with regard to IPRs should be unbiased and devel-opment focused. In addition TRIPS-plus provisions should be excluded from bilateral and regional agree-ments and should stopb being a requirement for other LDCs acceding to the WTO.

Finally, it is recommended that LDCs should not focus exclusively on IPRs as an incentive mechanism for inno-vation but rather explore alternative ways to incentivize innovation. In this regard, such mechanism as open source software, publicly-funded research, patent buy-outs and development prizes may be particularly prom-ising.


3.2.2 Brain Drain

With regard to the emigration of skilled persons, the critical policy issue is to transform brain drain into brain circulation. This requires actions by the LDC themselves, in particular to encourage return –especially short-term stays which can be used to transfer skills – and also mobilize the knowledge resources of the diaspora. But acion by development partners which are destinations for emigrants is also vital. In this regard, possible meas-ures include:

⇒ Hiring on a temporary rather than permanent basis

⇒ Establishing development assistance programmes which help LDCs to retain their professionals

⇒ Creating programmes to help skilled emigrants return to their home country

⇒ Avoid hiring some professionals most urgently needed in LDCs (which is a complex issue)

Ultimately the brain drain problem will only be solved through the development of economic opportunities in the LDCs. Continued economic marginalization will not be conducive to converting brain drain to brain circula-tion.

3.2.3 Knowledge Aid

The case for ODA is usually made on the basis of the lack of domestic financial resources. But knowledge is equally important, as we pointed at the beginning of this presentation. Donors are not insensitive to the impor-tance of boosting the role of knowledge in development. But they have tended to focus on using knowledge to improve aid delivery rather than to support knowledge accumulation in partner countries. Such aid – knowl-edge aid – can be a key to aid effectiveness, and aid for STI is an essential part of this. Such aid is a type of aid which is not a hand-out but a hand-up.

Conclusion: In terms of aid for STI, the Report makes a series of recommendations.

Firstly, it is important to boost aid for agricultural re-search, extension and education in LDCs. Agricultural research intensity (agricultural R&D as percentage of agricultural GDP) in LDCs is at the lowest level since 1971 and has been falling in recent years. It will be diffi-cult for LDC governments to increase it without foreign aid. Donors must reinforce their support to the network

of international agricultural research centres under the umbrella of the Consultative Group on International Agricultural Research (CGIAR) and ensure that its work is oriented towards increasing agricultural productivity of smallholders.

Secondly, it is suggested – as in the UN Millennium Project Report Innovation: Applying Knowledge in De-velopment led by Professor Calestous Juma – that aid-funded physical infrastructure projects should all be designed in such a way that they support the develop-ment of domestic design and engineering capabilities. In other words, a component of knowledge transfer and domestic skill accumulation by national professionals should be included in all such projects.

Thirdly, innovative uses of aid should be designed to leverage more learning from international linkages, particularly from FDI and global value chains. Most at-tention has been directed thus far to promoting FDI though ODA. But the thrust of this suggestion is more focused on increasing the technological effects of FDI by using ODA to build the capability of domestic firms that are engaged in international trade or that have business links with transnational corporations. The aim is to strengthen the transfer of skills through market transactions.

Fourthly, the Report recommends that technological upgrading is explicitly elaborated as an aspect of devel-opment in the Aid for Trade initiative currently being developed and in the Enhanced Integrated Framework for LDCs.

Finally, it is proposed that the economic effects of trade preferences for LDCs (such as the Everything But Arms Initiative) could be enhanced by deepening such prefer-ences through National Innovation Funds which finance technological learning and innovation by domestic firms whose activities are stimulated through trade prefer-ences. Such Funds would seek in particular to spread the benefits of trade preferences to more firms, to en-courage technological upgrading by exporters and to catalyze dynamic linkage effects. Technological upgrad-ing is particularly important at the present moment for garment firms faced by competition following the end of the transitional arrangements at the end of the Agree-ment on Clothing and Textiles.

Conclusion

The Report focuses on making practical suggestions. But more broadly, the Report argues that knowledge-based development can be the foundation for a rein-vigorated and forward-looking partnership for develop-ment in LDCs. There is a wide sense of restlessness with the ineffectiveness of current policies and a desire to find a new policy model, the report notes. Focusing on science, technology and innovation can provide a platform for innovative solutions and fresh thinking. It is in this area that more effective policies to promote sus-tained growth and poverty reduction can be found.

Authors

Charles Gore is Chief of Research and Policy Analysis in the Division for Africa, Least Developed Countries and Special Programmes, and Team Leader of UNCTAD's Least Developed Countries Report. Zeljka Kozul-Wright and Rolf Traeger are Economic Affairs Officers in the same Division. The research in the Report was also supported by Lisa Borgatti, Michael Herrmann and Pénélope Pacheco-Lopez. The Report, and also back-ground papers, can be downloaded at www.unctad.org/ldcr

References

1. UNCTAD (2000) The Least Developed Countries Report 2000: Aid, Debt and Private Capital Flows – The Challenge of Financing Development in the LDCs, United Nations, Geneva and New York.

2. UNCTAD (2002) The Least Developed Countries Report 2002: Escaping the Poverty Trap, United Nations, Geneva and New York.

3. UNCTAD (2004) The Least Developed Countries Report 2004: Linking International Trade with Pov-erty Reduction, United Nations, Geneva and New York.

4. UNCTAD (2006) The Least Developed Countries Report 2006: Developing Productive Capacities, United Nations, Geneva and New York

5. UNCTAD (2007) The Least Developed Countries Report 2007: Knowledge, Technological Learning and Innovation for Development, United Nations, Geneva and New York.


Abstract

The Green Revolution has contributed to alleviating pov-erty and hunger of hundred of millions of people, but re-mained technically and institutionally limited: it has largely bypassed small farms located in dry agro-ecological regions and its institutionally “top-down” ap-proach was not equipped to address social, economic and environmental variations at the local level. However, with new developments in biotechnology, including ge-netic engineering, unprecedented possibilities to address the competitiveness of small farmers in Africa have risen. Yet, there are new challenges too. The new technology is driven by the private sector, which is not attracted to in-vesting in research towards developing biotechnology specifically addressing the needs of small farms in Africa. Moreover, the accessibility of the existing technologies to small farmers is argued to be impeded by the intellectual property rights (IPR) leading to monopoly prices and hin-dering technology diffusion. Therefore, this paper analy-ses how intellectual property rights can be domestically tailored within the existing international commitments so as to incite the development of technologies that are favouring and accessible to small-scale farmers in Africa.

Introduction

The agricultural sector in developing countries is domi-nated by around 500 million small farms, with labour force working at low levels of productivity. Based on FAO’s database, 85 per cent of these farms are small-scale, operating less than 2 hectares (Nagayets, 2005, p.356). Hence, there is an urgent need to boost the com-petitiveness of small-farm agriculture and its contribution to poverty alleviation through science and technology. In this context, new biotechnology, including genetic engi-neering, may play a historic role. Some advanced devel-oping countries have already made significant progress in fostering technological innovation and knowledge transfer. For those lagging behind, designing an institu-tional framework to promote pro-small-scale agriculture is essential.

An effective intellectual property rights (IPR) regime can play an important role in such an institutional design - as


the accessibility of any existing technology to farmers is equally important as its technical availability. However, there are concerns that small-scale farmers in poor coun-tries by and large are being excluded from the benefits of new biotechnology. This is of particular importance be-cause leading biotech companies in research and innova-tion have substantial market dominance in the field. Hence there is a situation whereby a highly sophisticated private industry investing heavily into research and inno-vation in agriculture does not seem to address the tech-nological needs of the majority of developing country farmers. From legal and institutional perspectives, this paper addresses some of the question of why small farm-ers in developing countries, particularly in Africa, seem to have been left out of the process of technological devel-opment.

This takes the paper into the analysis of the WTO’s Agree-ment on Trade-Related Aspects of Intellectual Property Rights which obliges member countries to implement a patent system. The paper will assess the extent in which the protection requirement is flexible in its essence and content so as to leave some room for member countries to develop their own IPR regimes. We argue that the insti-tutional challenge for African countries is to design an efficient framework that is compatible with multilateral (and in some cases regional and bilateral) IPR regimes, but more importantly capable of offering incentives for specifically pro-small scale biotechnology research and innovation in agriculture. Given the great heterogeneity of farming systems and variations in domestic institutional capacities, these countries should design their own IPR frameworks promoting both home-grown innovation and technology transfer.

This paper is organised as follows. It begins with an analy-sis of some of the new opportunities that new biotechno-logical applications offer to small-scale farmers in devel-oping countries. Second, it provides an overview of physi-cal, technical and institutional factors affecting the acces-sibility of biotechnology to small farmers. Then, the focus moves on to the flexibilities that the international patent law provides for developing countries to design their own

Benefiting from Biotechnology: Promoting small-farm competitiveness and intellectual property rights

Baris Karapinar and Michelangelo Temmerman

Swiss National Centre for Competence in Research, World Trade Institute, Berne, Switzerland


IPR regimes. Finally, the paper draws attention to some alternative institutional approaches and provides some policy recommendations to promote specially tailored intellectual property right regimes conducive to endoge-nous development through biotechnological innovations.

Making small farms more competitive

The Green Revolution has left large numbers of poor farmers located in dry agro-ecological regions untouched, especially in Africa (Hazell and C. Ramasamy, 1991). Since both the availability and the timing of water are vital for chemical fertilizers and semi-dwarf seeds to work effectively, the impact of the Green Revolution in dry ecol-ogies without irrigation has been small. Mainly in sub-Saharan Africa and large pockets of areas in Asia, there are now an estimated number of 1 billion people living in rain-fed dry and cold ecological regions (Dixon, et al., 2001, p. 310), which has hardly been affected by the Green Revolution. Both poverty and malnutrition are prevalent in these regions where the ecological perform-ance of staple food production needs to be improved. With innovative crop pattern diversification, these regions may become competitive in local, domestic and even international markets.

New biotechnological developments promise to offer va-rieties with higher photosynthetic efficiency and en-hanced resistance to abiotic-stress, such as draught, excessive cold and heat. It is now possible to identify the network of genes that is associated with tolerating abiotic stress which conventional breeding technology would only identify as a result of far larger number of target traits (Garg, et al, 2002, p. 15898). For instance modify-ing rice to overproduce trehalose – a compound that ex-ists in certain organisms such as bacteria, yeast, and resurrection plants which stabilises biomolecules under stress condition – proved to improve its tolerance to salt, drought and cold stresses (Garg, et al, 2002, p. 15898). Similarly, research on frost tolerant potatoes in Bolivia, salt tolerant wheat in Egypt and cold tolerant tomatoes in China has been underway (FAO, 2002). Using genetic engineering to improve pest and disease resistance in East African bananas also offer higher productivity gains as compared to conventional breeding (Smale, et al. 2006). Similarly, biotechnological tools, such as marker-aided selection, has been used to improve the efficiency of conventional breeding techniques in order to identify drought tolerant maize traits to be bred with other varie-ties, such as African maize, which has improved the crop’s biomass efficiency (i.e. higher proportion of seed

development as compared to overall vegetation); (Nuffield Council on Bioethics, 2003, p. 21; Bruce, et al., p. 13).

Another major challenge facing small farmers in Africa is to diversify their production from staple foods to higher value cropping patterns with an increasing share of vegetables, fruits and livestock. Since these commodi-ties have higher income elasticity for demand, they pro-vide new opportunities for competitive farmers in the continent experiencing population growth, increasing urbanization with a widening middle-income class. How-ever, the conventional applications of the Green Revolu-tion in the 1970s and 1980s focused only on staple food products, mainly wheat and rice, paying almost no significant attention to horticultural crops and livestock products. Hence, African farmers now need scientific research and technological innovation in a wide range of high-value farm products.

Molecular biotechnology in horticultural crops has poten-tial to offer improvements in both reducing costs and achieving high standards. However, the vast diversity of varieties in horticulture covering relatively small acre-ages makes it difficult to achieve adequate economies of scale, attractive enough for the private sector to under-take extensive biotechnology research (Alston, 2004, p. 86). Some genetic traits have been developed, such as herbicide tolerant tomato and lettuce, pest-resistant broccoli and potato, virus resistant raspberries and plums (Clark, et al., 2004, p. 89-94). Similarly, tomato with a silenced gene associated with fruit softening was developed with the effect of improved taste and longer shelf life (Clark, et al., 2004, p.90). [1] Although the mar-keting of genetically modified horticultural crops is not yet feasible given the unfavourable perception of con-sumers, biotechnological tools, such as marker-aided selection, could be used to improve the efficiency of con-ventional breeding techniques in horticultural crops. Nevertheless, the new technology remains underutilized and the vast majority of the new varieties remain uncom-mercialized (Clark, et al., 2004, p. 89).

In the field of livestock products, scientific research and innovation is also crucial for the competitiveness of farms in Africa. Livestock plays a vital role in rural liveli-hoods by providing farmers with a vital source of protein, asset base and income. Similar to horticultural crops, markets for livestock products have been growing in Af-rica. Biotechnological tools such as molecular markers


International Intellectual Property Law and Agricultural Patents: Overview of Obligations and Flexibilities

The new biotechnology can be problematic when it comes to promoting competitiveness in developing countries. On the one hand, there is an increasing knowledge gap be-tween developed and developing countries (Rausser, et al., 2000, p. 512). The fact that the new biotechnology has become increasingly more sophisticated, scientific research and trials requires heavy investment, excluding many African countries with limited resources to spend on R&D. The US, the UK, Sweden, Australia and Switzerland are leading countries in the field, while there are only a few developing countries making significant progress, such as South Africa, China and India. On the other hand, the knowledge gap between public and private research institutions is also widening. The research and develop-ment activities and subsequent technological adaptations have been dominated by the private sector which holds key methodological knowledge necessary for further inno-vation (Timmer, 1998). Some experts even argue that in-creasing scientific gap between developing and developed countries and the dominance of the private sector is creat-ing a “scientific apartheid” (Serageldin, 2001).

Small-scale farmers are particularly disadvantaged – as leading biotech companies are inclined to design their products based on the needs of large-scale farms, espe-cially in developed countries. First, given the limited pur-chasing power of small farms, it is only natural that a profit-propelled industry is interested in serving the inter-est of those high-income farms with a propensity to buy new technologies. Second, since large farms are the main target of the industry, the companies invest more on capi-tal and labour saving technologies, such as pesticide and herbicide resistant varieties, rather than water efficient and extra-nutritious varieties which are more relevant for small-scale farms in Africa. Similarly, in developed coun-tries, there has been a trend of shifting research priorities from productivity to quality attributes, reflecting affluent consumer preferences (organic products, functional food-stuff etc.); (Pardey, et al., 2006). Fourth, major biotech companies tend to protect the potential gains of their in-novations through contract farming rather than investing in so called ‘terminator’ technologies which are not always technically possible and/or economically feasible. As a result, transaction costs associated with contract farming are extremely higher with small-scale farms as compared to large ones, making it more feasible for biotech compa-nies to deal with the latter.

and quantitative trait loci (QTL), identifying genes asso-ciated with desirable traits, and methods like artificial insemination, embryo transfer and in vitro fertilization that are used to disseminate superior germ plasm offer potential benefits for the poor. Productivity growth through these scientific innovations is expected to come from enhanced breeding scheme designs, im-proved quality and welfare of offspring, higher produc-tivity and nutritional value in milk and meat production. Biotechnology is also used to improve the nutritious efficiency of livestock by modifying either the feed to improve its digestive productivity or the animals to im-prove their metobolismic productivity to make betters use of existing feeds (higher weight-gain and milk pro-duction per feed intake) (Madan, 2005, p. 133). Find-ing more effective ways of fighting animal diseases is also of crucial importance in the vast majority of African countries lacking good veterinary services.

The development of animal biotechnology, however, has been slow as compared to crop biotechnology due to higher costs, inefficiencies in gene transfer tech-niques and the low rates of reproduction in animals (Madan, 2005, p. 130). Performance traits such as growth are associated with many genes, making re-search more complicated and potentially more expen-sive (Van Eenennaam, 2006, p. 136). Apart from trans-genic research animals, there are only a few genetically modified animal product commercialized for the world agricultural markets. Moreover, the private sector’s interest in investing in pro-poor livestock biotechnology has been absent. As a result, although reproductive techniques such as artificial insemination and embryo transfers are used in developed countries, African countries are lagging behind. For instance, more than 60 per cent of all embryo transfers (around 450,000), mainly in diary cows, in 2001 were undertaken in North America and Europe (Madan, 2005, p. 131). Since many animal species are unique to their local environ-ment, each with different nutrient efficiency, disease resistance and development productivity (Madan, 2005, p. 133), there is an increasing need for specifi-cally designed biotechnology applications addressing the needs of farmers in Africa. East Coast Fever Vac-cine project coordinated by the International Livestock Research Institute (ILRI) in Kenya is a good but rare example of such applications.

vention without the consent of the patent holder [5] - avail-able for any type of new, inventive and industrially applica-ble inventions [6]; whether products or processes; in all fields of technology; for a minimum term of 20 years [7]; and without discrimination as to the field of technology, the place of invention, or whether products are imported or locally produced. As the Agreement is imbedded in the WTO dispute settlement system, it enjoys a strong enforce-ment mechanism. In fact, for the first time in history, dis-putes over intellectual property rights can be brought be-fore an international court. However, based on this foun-dation, the agreement allows for high levels of flexibilities and exclusions, particularly in the field of biotechnology.

First, there is flexibility in the date of final implementation of the TRIPs agreement depending on a member country’s level of development. While developed countries had to implement the Agreement by the 1st of January 1995 al-ready; developing countries [8] enjoyed a maximum period of implementation up to the 1st January 2005. [9] For LDCs [10], the period of transition lasted until the 1st of January 2006 [11]; except for pharmaceutical patents which are excludable from patent protection until 2016 [12]. The Council for TRIPS can, however, upon duly moti-vated request, extend this period. In 2005, the Council decided to extend the general transition period until the 1st of July 2013. [13] However, it is important to note that laws, regulations and practice made during the additional transitional period may not result in a lesser degree of consistency with the provisions of the TRIPS Agreement. This means that the rules which had already been estab-lished before the extension of the period may not be changed in the direction of a lower level of protection.

Secondly, within the patentability criteria of novelty, inven-tiveness and industrial application, member states are free to design to concrete content of these concepts. Lim-ited exceptions of the rights [14] are possible to the extent that they do not unreasonably conflict with the normal exploitation of the patent and that they do not unreasona-bly prejudice the legitimate interests of a patent owner. [15] Also, the possibility to implement limitations aiming at allowing the use of patented inventions without the patent holder’s consent, e.g. compulsory licenses, is fully ac-cepted. [16] Moreover, as for the possibility of patentabil-ity exclusions for inventions whose commercial exploita-tion would be going against the ordre public [17] and/or morality [18], member states are free to fill in themselves. [19]

Intellectual property rights (IPR) also constitute a major factor affecting the level of accessibility of the new bio-technology to small farmers - as its various applications have been patented all over the globe. Traditionally the argument is made that IPRs only favour development in countries after achieving a certain stage of develop-ment. Below that level, they might rather hinder infant industries to develop (Spence, 2001, p. 270). For ex-ample, European industries at the beginning of the 20th century and Japanese industry until a few decades ago were able to develop their innovative hi-tech, car and pharmaceutical industries by using the lack of patent protection and copy technologies disclosed at foreign patent offices. Swiss chemical industry, Dutch audio fabrication and Swedish car production all saw daylight in period with no active patent law in their territory. These countries had already reached a certain stage of locally induced development, however. The argument above could hence nowadays be applied to countries like India, but in theory hardly to Africa and Least Devel-oped Countries (LDCs).[2]

In biotechnology, however, this might be different. In-deed, not only is the field relatively more investment sensitive than any other, but IP laws and patent laws in general seem to offer greater flexibilities in relation to biotechnology than in any other field of technology. In-deed, small-scale farmers might have a stronger inter-est in (adjusted) IPRs that incentivize the home-grown local innovation of useful biotechnology products, than it has in the possibility to freely copy technologies as developed and disclosed at foreign patent offices. Hence, it comes down to implementing an IP system that securely protects investments, while using the flexibilities allowed under TRIPs and regional patent conventions to adjust the system to local needs.

The minimum obligations that African national patent laws have to fulfil operate basically at two levels: the international and the regional level. At the international level, the WTO Agreement on Trade Related Aspects of Intellectual Property (the ‘TRIPs’ Agreement [3]) consti-tutes the major international treaty on IP law, harmonis-ing to a large extent basic rules of patent law. [4] At the regional level, IPR treaties such as AIPO’s Bangui Agreement or ARIPO’s Harare Protocol are to be taken into account.

The TRIPs Agreement makes patents -enshrining the right to prevent third persons to use the patented in-


generis system is established for plant varieties.[23] The most largely established system of sui generis protection, the UPOV system [24], provides IP protection for plant va-rieties that are found -after a two year period of testing- new, distinct, uniform and stable.[25] Hereby, major differ-ences exist as compared to the patent system which re-quires the disclosure of the invention that is applied for patent protection and also works with a requirement of non-obviousness; both lacking under the UPOV system. Hence it is argued that while the patent system is meant to protect innovation, the UPOV system protects investment (Llewelyn, 2003, p.316). Furthermore, as for the scope of the rights conferred, the UPOV system provides in a so called farmer’s privilege, enabling farmers to save and re-use harvested seeds, and embodies a breeder’s exemp-tion, allowing the development of new plant varieties based upon an existing, protected variety.

The possibility to establish a sui generis system for the protection of new plant varieties, however, does not neces-sarily mean countries must join the traditional UPOV-system of plant variety protection. They may choose to de-sign a system specifically tailored to their local needs and interests.[26] Here, the major uncertainty is to know whether or not such systems would comply with TRIPs by providing effective protection mechanisms. Before WTO judicial bodies, their effectiveness is likely to be judged upon sufficient strength of the rights conferred (Llewelyn, 2003, p. 310). This ‘sui generis’-possibility is limited to plant varieties and does not cover the full range of biotech-nological inventions. In particular, it does not address the protection of nucleic (‘gene’) sequences, nor any proc-esses. In this context, it must be mentioned that it remains unclear to what extent countries can refuse the patenting of plant and/or animal gene sequences under the TRIPs Agreement, which only allows its member parties to ex-clude ‘plants’ and ‘animals’.[27] However, it is obvious that the flexibilities and exceptions discussed above pro-vide room for various interpretations.

The second multi-national level of intellectual property regulation affecting domestic African patent laws is com-posed of two regional intellectual property organisations and their conventions. On the one hand the African Intel-lectual Property Organisation (‘AIPO’) [28] brings together English speaking African countries, mainly playing a role of simplifying the administrative procedure for patent applica-tions to its member states.[29] On the other, French speaking African countries are grouped by the African Re-gional Intellectual Property Organisation (ARIPO) [30]

Third, as for flexibilities specifically addressing biotech-nology and living matter, the TRIPs Agreement allows for excluding plants and animals from patentability, provided that an effective sui generis system [20] is established for the protection of plant varieties.[21] As regards living matter, in fact, the Agreement requires only micro-organisms, non-biological processes for the production of plant and animals, and microbiological processes to be set patentable.[22] It seems hence that plant and animal related inventions, other than non-biological processes and micro-organisms, can be excluded from patentability without infringing the basic TRIPs principle that all inven-tions in any field should be patentable.

Furthermore, the TRIPs Agreement offers several portals for flexible interpretations of its provisions. Although it aims at securing effective IPR protection mechanisms provided that “measures and procedures to enforce in-tellectual property rights do not themselves become bar-riers to legitimate trade”, the agreement indeed also rec-ognizes in its preamble “the underlying public policy ob-jectives of national systems for the protection of intellec-tual property, including developmental and technological objectives”. This is further strengthened by Article 7, rul-ing the TRIPs Agreement is to contribute to the promo-tion of technological innovation and the transfer of tech-nology in a manner that is “conducive to social and eco-nomic welfare, and to a balance of rights and obliga-tions”. Furthermore, Article 8 provides in a portal to adopt measures necessary to protect public health and nutrition, as well as to “promote the public interest in sectors of vital importance to their socio-economic and technological development” – however, only to the extent that such measures are consistent with the provisions of this Agreement. This latter limitation would mean such concerns can only be taken into account within the bor-ders of the TRIPs obligations and scope of rights; render-ing the Article 8 possibility quite marginal. However, in literature, Article 8 has been interpreted fairly largely to eventually even serve as a legitimate portal to exclude certain inventions in the pharmaceutical or agricultural sector from patentability, if this would otherwise make the cost of access prohibitive or cause economic harm (Llewelyn, 2003, p. 330). Furthermore, still under Article 8, it is also allowed to take actions aimed at preventing the abuse of IP-rights (by the right holders) that would adversely affect the international technology transfer.

Plants and animals can be excluded from patentability under the TRIPs Agreement, provided an effective sui


participation (Hall, et al., 2001, pp 785). Hence, there is an increasing need for developing countries to move away from the conventional institutional approaches consider-ing scientific research and technological innovation as explicit ‘public goods’ achievable through linear pathways which only the welfare state has the responsibility to pro-vide.

There is a need for new policy approaches designed to provide more institutional incentives that would enhance the role of the private sector, both local and international, to invest in biotechnology. However, without a sound legal framework stably protecting the investments/innovations, biotechnological industries cannot flourish. A specially tailored IPR regime reflecting country specific realities and priorities would be a vital tool within a comprehensive in-stitutional framework promoting agricultural competitive-ness. Hence, rather than simply imitating European intel-lectual property laws, African countries should benefit from the flexibilities provided under TRIPs, UPOV and Re-gional African Intellectual Rights Conventions to tailor spe-cial IPR frameworks. These frameworks should not only be sophisticated enough to promote home-grown biotechno-logical innovation and technological transfer but also con-ducive for public-private partnerships which are becoming increasingly common in advanced developing countries.

Public-private partnerships (PPPs) offer new institutional opportunities for enhancing biotechnological research. There are various types of institutional design for PPPs, but in general public institutions and the private sector pool their resources for research which would then benefit both the private sector and the overall public. It is usually the case that the private sector provides its methodologi-cal knowledge, financial resources and marketing exper-tise while the public sector is providing institutional and infrastructural support, such as introducing supportive legislation, allowing the use testing facilities and germ-plasm varieties. In this way, private biotech companies can gain access to large domestic agricultural markets. For big multinational biotech companies, it is also consid-ered to be a tool of building a pro-developmental public image (Kameri-Mbote, et al., 2001, p 12). PPPs can also help public institutions convert their research outputs into end-user oriented products. They can also promote private sector development in countries with agricultural sectors dominated by state-owned monopolies (Spielman, et al, 2007, p34). More importantly, innovation-driven PPPs can play a major role in making technology both available and accessible to poor farmers.

which incorporates a similar simplified application proce-dure but also rules substantial patent law provisions. As for biotechnology and the patentability of plants and ani-mals, AIPO’s Bangui Agreement establishes an exclusion form patentability for plant varieties, animal species and essentially biological processes for the breeding of plants or animals other than microbiological processes and the products of such processes.[31]

African countries are not making use of existing flexibil-ities in their patent laws. In fact, they tend to implement patent laws more or less copied from developed coun-tries’ patent acts and their patent offices tend to simply follow patentability decisions of major patent offices (United States Trademark and Patent Office; European Patent Office; Japanese Patent Office). They seem to be reluctant to implement sui generis systems for plant vari-ety protection too. Although, many developing countries are pressured to join the UPOV system in bilateral free trade agreement-negotiations, a majority of African coun-tries has not adhered to UPOV, let alone benefiting from the possibility to implement sui generis systems tailored to their local needs. UPOV adherence is limited to only a few African countries which have mostly joined the weaker 1978 version of the UPOV convention.[32]

IPR and Competitiveness - Public-Private Partnership

Following the era of the ‘welfare state’ in the 1979s and early 1980s and that of ‘neo-liberalism’ over the 1990s, there has been a significant shift in political/policy ap-proach to institutional development over the recent years. The state-led centralist approach of the Green Revolution to scientific research and technological inno-vation is no longer considered to be feasible. In many developing countries, public research institutions, which were never designed to be competitive, find it increas-ingly difficult to obtain adequate resources and expertise to innovate in a rapidly developing technology field. They do not have the market knowledge and entrepreneurial drive to respond to today’s world of extremely diversified and sophisticated agricultural markets. Furthermore, the design of these institutions had been based on the con-ventional neo-classical assumption that there is a linear path from investment and research to innovation and the subsequent adoption by farmers (Hall, et al., 2001, p. 785). This has been called into question as being sim-plistic and infective. Instead, the ‘process’ approach pro-poses that the technological innovation is affected by many dynamic factors leading to setbacks and irregulari-ties requiring micro management and extensive farmer


Conclusion

The new biotechnology offers new opportunities to pro-vide pro-small farm growth and development in rural ar-eas in Africa. It can address the needs of small farms in unfavourable ecologies where ecological frontiers have been reached and the marginal benefits that the conven-tional technology has to offer has already been ex-hausted. Through more robust staple varieties which are tolerant to abiotic stresses, it offers farmers in ecologi-cally unfavourable areas opportunities to improve their productivity. Research in high-value agricultural com-modities such as horticultural crops and livestock which are becoming increasingly more important sources of income for African farmers is also promising. The ad-vances in technological applications addressing malnutri-tion and diseases would also be major breakthrough in the fight against poverty. Hence, new biotechnology is rapidly improving its technical capacity to provide break-through innovation with the potential to benefit African farmers.

The technical availability, however, is no guarantee for availability and accessibility which can only be dealt with establishing right economic incentives and institutional frameworks. There is a widening knowledge gap between developed and developing countries on the first hand, between public and private sector on the other. Further-more, multinational companies governing the market at this moment are inclined to design their products based on the needs of large-scale farms, ignoring small farms with limited purchasing power. There is a need for de-signing new institutional frameworks tailored ensure high accessibility for small farms while providing adequate incentive to the private sector to invest in innovation and technology transfer.

Establishing an adequate IPR regime seems essential in this context. Traditionally the argument is made that IPRs only favour economic development of countries who have reached a certain stage of development; and devel-oping as well as least developed countries are character-ized by a persistent reluctance to IP rights. Yet, small scale farming might have a stronger interest in (adjusted) IPRs that incentivize the innovation of locally useful biotechnology products, than it has in the possibil-ity to freely copy technologies as developed and dis-closed at foreign patent offices and hence in the lack of IPRs. In fact, absence of IPR regimes providing incentive and reward for innovation is seen as a major institutional


constraint hindering local innovation

IPRs, in particular patents and sui generis rights for plant or animal variety protection, need however to be imple-mented in a well thought manner balancing rights and obli-gations of the right holders to the local circumstances. In this, it seems that African countries have not used flexibil-ities to do so as they are provided in both International and Regional patent law treaties. Hence, we argue that least developed countries need to design new institutional frameworks for intellectual property protection exclusively in the field of biotechnology. A specially designed IPR re-gime should be a patent protection system (rather that UPOV- system) sophisticated enough to cover nucleic (‘gene’) sequences and methodological processes while also being conducive to public-private partnerships.

The Authors

Baris Karapinar is a senior research fellow for the Swiss National Centre for Competence in Research (NCCR – In-ternational Trade Regulation; IP-5 ‘Sustainable Agricul-ture’), World Trade Institute in Berne.

Michelangelo Temmerman is a PhD student for the Swiss National Centre for Competence in Research (NCCR – In-ternational Trade Regulation; IP-9 ‘Biotechnology’), World Trade Institute in Berne.

Endnotes

1. Development of new technologies extending the shelf life of horticultural crops that has short post-harvest lives such as banana, mango, papaya is very important. Biotechnology has been used in several flower varieties, such as carnation, rose and gerbera for the purpose of modifying a greater variety of flower colour (currently produced in South America for mar-kets in north America) (Clark, et al., 2004, p. 93).

2. In fact, of a list of 50, 32 LDCs are WTO member states. As regards Africa, this includes Angola; Benin; Burkina Faso; Burundi; Central African Republic; Chad; Congo; Democratic Republic of the Djibouti; Gambia; Guinea; Guinea Bissau; Lesotho; Madagascar; Malawi; Maldives; Mali; Mauritania; Mozambique; Niger; Rwanda; Senegal; Sierra Leone; Tanza-nia; Togo; Uganda; and Zambia. Furthermore, Cape Verde; Ethiopia; Sao Tome & Principe; and Sudan are in the process


of accession (http://www.wto.org/English/thewto_e/whatis_e/tif_e/org7_e.htm (last visited 7 October 2007)).

3. Agreement on Trade Related Aspect of Intellectual Property Protection, Annex IC to the Agreement Establishing the World Trade Organization, Marrakech, 15 April 1994, 33 International Legal Material 1197 (1994).

4. For a list of (African) member states to the WTO: http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm (last visited 10 October 2007).

5. Article 28 § 1 (a) TRIPs Agreement (as regards product pat-ents) & Article 28 § 1 (b) TRIPs Agreement (as regards proc-ess patents).

6. Article 27 § 1 TRIPs Agreement.

7. Article 33 TRIPs Agreement.

8. The decision to classify as a developed or rather as a devel-oping country does not depend upon strict WTO criteria, but on (challengeable) self designation.

9. Article 65 TRIPs Agreement.

10. As regards LDCs, WTO follows the UN categorisation of LCDs which sets three cumulative criteria for the identification of the LDCs. According to Article 11 § 2 of the WTO Agreement (Agreement Establishing the WTO, Marrakech, 15 April 1994, 33 International Legal Material 15 (1994), available at: http://www.wto.org/english/docs_e/legal_e/04-wto.pdf (last visited 7 October 2007).

11. [Article 66 TRIPs Agreement.

12. WTO, Doha Ministerial Declaration on the TRIPs Agreement and Public Health, 14 November 2001, WT/MIN(01)/DEC/2, at § 7, available at: http://www.wto.org/english/tratop_e/dda_e/dda_e.htm (last visited 7 October 2007).

13. TRIPs Council, Decision of the extension of the transition period under Article 66 § 1 for least developed countries, 29 November 2005, available at: http://www.wto.org/English/news_e/pres05_e/pr424_e.htm (last visited 7 October 2007).

14. As guaranteed under Article 28 of the Agreement.

15. [Article 30 TRIPs Agreement. See on the concrete content of these criteria: WTO Dispute Settlement Body, Panel Report Canada – Patent Protection of Pharmaceutical Products, WT/DS114/R, 17 March 2000.

16. Under Article 31 of the TRIPs Agreement.

17. This concept is generally linked to safety issues. In fact, the Technical Board of Appeal of the European Patent Office established the principle that claimed subject matter that is

likely to seriously prejudice the environment should be excluded from patentability for being contrary to the ordre public (Technical Board of Appeal of the European Patent Office, Plant cells/PLANT GENETIC SYSTEMS, 21 February 1995, T 356/93, Official Journal of the European Patent Office (1995) 545, § 18). Obviously, issues of biosafety and biodiversity immediately come to mind (See for instance: G. VAN OVERWALLE, Influence of Intellectual Property Law on Safety in Biotechnology, in World Congress on Safety of Modern Technical Systems, Saarbrücken 2001, TÜV-Verlag, pp. 664–670). Yet it remains to know to what extent patent examiners can assess safety.

18. Under EPO case law, the concept of morality is a belief about whether a certain behaviour is right or wrong, based on the totality of norms that are deeply rooted within European society and civilization (see Technical Board of Appeal of the European Patent Office, Plant cells/PLANT GENETIC SYSTEMS, 21 February 1995, T 356/93, Official Journal of the European Patent Office (1995) 545, § 6).

19. [Article 27 § 2 TRIPs Agreement.

20. This basically refers to IP systems of a different nature from those categorized under the TRIPs Agreement (Patents; Trademarks; etc.)

21. No such obligation has been incorporated as regards animal varieties, however.

22. Article 27 § 3 (b) TRIPs Agreement.

23. [The distinction between plants as a generic term and plant varieties as a taxonomical rank has been largely discussed in case law of the European Patent Office; see: Enlarged Board of Appeal of the European Patent Office, Transgenic Plant/NOVARTIS II, 20 December 1999, G1/98, Official Jour-nal of the European Patent Office (2000) 125.

24. [UNION INTERNATIONALE POUR LA PROTECTION DES OB-TENTIONS VEGETALES, International Convention for the Pro-tection of New Varieties of Plants, 2 December 1961, as Revised at Geneva on 10 November 1972, on 23 October 1978, and on 19 March 1991, 1861 United Nations Treaty Series 281, available online at: http://www.upov.int/en/publications/conventions/1991/act1991.htm (last visited 2 October 2007), ‘UPOV Convention 1991’.

25. Article 5 of the UPOV 1991 Convention.

26. [See in relation hereto: P. CULLET, Intellectual Property Rights and Food Security in the South, 7 The Journal of World Intellectual Property 3 (2004). Also, as regards protec-tion of ‘traditional knowledge’: T. COTTIER and M. PANIZZON, A New Generation of IPR for the Protection of Traditional Knowledge in PGR for Food, Agricultural and Pharmaceutical Uses, in T. COTTIER & S. BIBER-KLEMM, Rights to Plant Ge-netic Resources and Traditional Knowledge: Basic Issues


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30. Cf. AFRICAN REGIONAL INTELLECTUAL PROPERTY OR-GANIZATION (ARIPO), Protocol on Patents and Industrial designs within the Framework of the African Regional Intellectual Property Organisation, Harare, 11 December 1987, as last amended at 13 August 2004, available at: http://www.oapi.wipo.net/doc/en/bangui_agreement.pdf (last visited 7 October 2007).

31. Members to ARIPO are: Botswana; Gambia; Ghana; Kenya; Lesotho; Malawi; Mozambique; Namibia; Sierra Leone; Somalia; Sudan; Swaziland; Tanzania; Uganda; Zambia; and Zimbabwe.

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Despite this increase, Africa’s share in global FDI fell to 2.7% in 2006, compared with 3.1% in 2005. FDI to South-East Europe and the Commonwealth of Inde-pendent States increased to a new record level: $69 billion.

The United States was the top recipient in 2006, fol-lowed by the United Kingdom. China again ranked first among developing countries, and the Russian Federa-tion attracted the largest inflows of the transition economies. While most FDI originated in the developed world, outflows from developing and transition econo-mies rose to a record high, underscoring the growing clout of TNCs from emerging economies. In fact, for the first time, as many as seven companies from develop-ing countries are among the world's top 100 TNCs. This trend is important, as a large part of these outflows go to other developing countries, resulting in closer South-South economic ties.

As in previous years, cross-border mergers and acquisi-tions were responsible for large parts of global FDI. This was particularly the case in developed countries. In North America, cross-border M&As almost doubled. In Europe, the United Kingdom was the main target coun-try, while Spanish companies were very active as ac-

Overview

Foreign direct investment (FDI) represents the largest share of external capital flows to developing countries. Through their investments, transnational corporations (TNCs) can bring new technology, management know-how and improved market access to a host country. FDI can therefore be an important force for development. At the same time, benefits cannot be taken for granted. To secure development gains from FDI, it is essential that countries establish adequate institutions and policies, and build domestic productive capabilities. This is par-ticularly important in the case of the extractive indus-tries.

Record FDI flows to developing countries in 2006

Reflecting strong growth in the global economy and high corporate profits, world FDI inflows grew by 38% in 2006 to reach $1.3 trillion (see Figure 1). Investments increased in virtually all parts of the world. Among the developing regions, Asia was the top recipient. With record inflows of almost $260 billion, it received more than two thirds of all FDI to developing countries. The second largest destination was Latin America and the Caribbean, with $84 billion. Africa saw its highest in-flows ever: $36 billion, or twice as much as in 2004.

Transnational Corporations, Extractive Industries and Development

UNCTAD Contact: Torbjorn Fredriksson—[email protected]

Figure 1. FDI inflows, global and by group of economies, 1980-2006 (Billions of Dollars)

Source: UNCTAD, FDI/TNC database

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corporate income taxes and expanding promotional ef-forts. Further liberalization of specific industries is under way in various countries, such as that relating to profes-sional services, telecommunications, banking and energy. In some industries, however, new restrictions on foreign ownership or measures to secure a greater government share in revenues were observed. Such steps were the most common in extractive industries and in industries deemed to be of “strategic” importance.

High mineral prices have brought natural resources back in focus

Recent years have seen a revival of FDI in extractive indus-tries, reflecting the commodity price boom. This represents a window of opportunity for mineral-rich countries to accel-erate their development. This is especially important as we reach the midpoint in our efforts to reach the Millennium Development Goals. The boom has reminded all countries of the importance of secure supply of natural resources. No modern economy can function without adequate, af-fordable and secure access to these raw materials.

quirers. Companies from developing and transition economies have also been increasingly engaged in such transactions, the largest in 2006 being the $17 billion acquisition of Inco (Canada) by CVRD (Brazil). As many as 172 mega deals (i.e. deals worth over $1 billion) were recorded in 2006.

Global FDI figures are expected be even higher in 2007. UNCTAD surveys suggest that investment activity may continue to grow in the next two years. But such fore-casts are inherently uncertain, and future FDI prospects will depend largely on how well risks and uncertainties — such as financial instability and high energy prices — in the global economy are addressed.

The perception that these and other changes might trig-ger renewed protectionism has led to some concern. However, this trend appears to be confined to a rela-tively small number of countries, and to specific indus-tries. In 2006, 147 policy changes making host-country environments more favourable to FDI were observed. They included, in particular, measures aimed at lowering


Booming African markets: FDI and the common man Lusaka Stock Exchange added $1.1 billion in the first 7 months of 2007, - 3-folds FDI inflows for Zambia in 2006 and Africa’s best performer (in US$) for the period. A clear FDI-Stock market policy may be needed to grow the markets and broaden participation. (Source: Brian Tembo, LuSE)

reigned. Today, State-owned companies from developing and transition economies are the biggest producers. In fact, the world’s top three oil and gas companies all be-long to this category: Saudi Aramco, Gazprom and the National Iranian Oil Company. In recent years, a number of State-owned oil and gas companies from the South have made significant inroads into foreign locations. For-eign affiliates generally account for a lower share of pro-duction than in metal mining. In 2005, they were respon-sible for an estimated 22% of global oil and gas produc-tion, with the average share being higher in developed countries (36%) than in developing countries (19%) and transition economies (11%). However, there was wide variation among developing countries. Foreign compa-nies accounted for more than half of production in An-gola, Argentina, Equatorial Guinea, Indonesia, Sudan and the United Kingdom. On the other hand, no production was attributed to foreign affiliates in, for instance, Ku-wait, Mexico and Saudi Arabia.

Development and policy implications

Mineral endowments provide opportunities for economic development and poverty alleviation in the countries where they are located. Too often, however, the impact of extractive activities has been and remains disappoint-ing. The well-known costs and benefits of FDI extend equally to the extractive industries. In fact, more than in other industries, the impacts of resource extraction are not just economic, but encompass the environmental, social and political dimensions as well. The net develop-ment outcome depends on the quality of governance, specific policies and institutions in the host countries, the nature of minerals extracted, the domestic capabili-ties of the host country, and the behaviour of the TNCs.

From an economic perspective, TNCs can contribute capital, technology, management expertise and access to markets. Such inputs are particularly important in countries with weak domestic capabilities and for tech-nologically complex projects. They can help expand pro-duction and exports, improve productivity and generate government revenues. But TNC involvement comes at a price. Foreign investors claim a significant share of the revenue generated, and repatriate what is often a large part of the profits. The potentially most important contri-bution from TNC participation may be a rise in host-country income, including government revenue.

In both the oil and gas and the metal mining industries, the evolving arrangements reflect an ongoing process through which governments seek to find an appropriate balance between the respective rights and obligations of States and firms. As government revenue is among the

Global mineral markets are characterized by an uneven geographical distribution of reserves, production and consumption. These imbalances sometimes create concerns among importing countries over the security of supply, and concerns among exporting countries over market access. TNCs are important for both groups of countries. Mineral-rich developing countries that lack the domestic capital and expertise to exploit their natural resources often rely on TNCs to supply the necessary inputs. This is particularly the case for metal mining and for relatively remote or inaccessible oil and gas fields. Meanwhile, developing countries whose de-mand for mineral resources is fast expanding are in-creasingly encouraging their State-owned companies to invest abroad to secure long-term, stable access to such resources.

Although extractive industries make up only 9% of the global stock of FDI, in all the major country groups, they account for a significant share of the total inward FDI stock in some countries. This applies, for example, to Australia, Canada and Norway among developed coun-tries; Botswana, Nigeria and South Africa in Africa; Bo-livia, Chile, Ecuador and Venezuela in Latin America and the Caribbean; and Kazakhstan in South-East Europe and the CIS. In a number of low-income, min-eral-rich countries, extractive industries account for the bulk of inward FDI; many have few other industries that can attract significant FDI, due to their small domestic markets and weak production capabilities.

Investments in the extractive industries are spanning the globe. In metal mining, 15 of the 25 leading compa-nies in 2005, ranked by their share in the value of world production, were headquartered in developed countries. Eight others were from developing countries and the two remaining were from the Russian Federa-tion. The top three were BHP Billiton (Australia), Rio Tinto (United Kingdom) and CVRD (Brazil). The relative importance of foreign companies in the production of metallic minerals and diamonds varies considerably. Foreign affiliates account for virtually all of the (non-artisanal) production in LDCs such as Guinea, Mali, the United Republic of Tanzania and Zambia, as well as in Argentina, Botswana, Gabon, Ghana, Mongolia, Na-mibia and Papua New Guinea. In these countries, TNCs generally operate through concessions granted in the form of exploration and mining licences. By contrast, in the Islamic Republic of Iran, Poland and the Russian Federation their share is negligible.

In oil and gas, world production is no longer dominated by developed-country TNCs, as was the case in the early 1970s when the so-called “Seven Sisters”



most important benefits from mineral extraction, it is not surprising that policymakers devote much attention to finding a mechanism that assures the government an appropriate share in the profits from mineral extraction. As the result of higher mineral prices in the past few years, a number of governments have taken steps to increase their share of the profits generated by amend-ing their fiscal regimes or their contractual relations. Recent regulatory changes in developed, developing as well as transition economies suggest that many govern-ments believed their previous regulations may have been overly generous vis-à-vis foreign investors.

In order to reap not just more revenues, but more devel-opment gains as well, government revenue from natural resources has to be managed and used so as to pro-mote development objectives. In this context, it is impor-tant to enhance revenue transparency. Available infor-mation on the sharing and distribution of revenue is patchy at best. One major way to address this is for

more TNCs, host countries and home countries to com-mit to the principles of the Extractive Industry Transpar-ency Initiative (EITI).

Managing the considerable environmental, social and political risks associated with extraction projects, and promoting sustainable development, will require that many countries improve their institutions and policies. Securing long-terms gains from such projects, espe-cially when TNCs participate, must involve a concerted effort not only by host-country governments, but from the TNCs and their home countries as well. Home coun-tries should promote the responsible behaviour of their TNCs, especially when they own the investing compa-nies. Home countries can also help recipient countries build efficient policy and governance. The role of TNCs, in turn, is to contribute to more efficient production while respecting the laws of the host country. When the extraction takes place in a weakly governed or authori-tarian State, companies need to carefully consider the

Rank 2005 Company name Home country State ownership (%)

Share in world pro-duction (%)

Number of host econo-mies with

production Metal mining

1 BHP Billiton Australia - 4.8 7

3 Rio Tinto United Kingdom - 4.6 10

2 CVRD Brazil 12 4.4 - 4 Anglo American United Kingdom - 4.3 9

5 Codelco Chile 100 3.2 - 6 Norilsk Nickel Russian Federation - 2.2 1

7 Phelps Dodge United States - 2.0 2

8 Grupo México Mexico - 1.6 2

9 Newmont Mining United States - 1.3 7

10 Freeport McMoran United States - 1.3 1

Oil and gas

1 Saudi Aramco Saudi Arabia 100 8.8 - 2 Gazprom Russian Federation 51 7.7 2 3 NIOC Iran, Islamic Rep. 100 3.9 4 ExxonMobil United States - 3.7 23 5 Pemex Mexico 100 3.5 6 BP United Kingdom - 3.3 19 7 Royal Dutch Shell United Kingdom /

Netherlands - 3.2 25

8 CNPC China 100 2.4 14 9 Total France - 2.1 27 10 Sonatrach Algeria 100 1.9 1

Table 1. The world's 10 largest metal mining and oil and gas companies, ranked by total production, 2005 Source: UNCTAD, based on data from the Raw Materials Group and IHS.


implications of such investments, and if they do invest, need to abide by internationally acceptable standards.

Voluntary initiatives can be a useful supplement in countries where appropriate legislation or its enforce-ment is absent. A number of multi-stakeholder initia-tives have been established with the aim of reducing the risk of conflict-related resource extraction and set-ting standards for corporate behaviour in conflict situa-tions. The most notable ones include the EITI, the Kim-berley Process Certification Scheme, the Voluntary Prin-ciples on Security and Human Rights and the Global Reporting Initiative. However, it is important for more countries and TNCs in extractive industries to become involved in these initiatives. Their impact will depend on universal compliance.

The challenge is to develop frameworks that create proper incentives for local and foreign firms to produce efficiently, while at the same time respecting environ-mental and social requirements that reflect the inter-

ests of local communities and society at large. The cur-rent commodity price boom represents a window of opportunity for developing economies to use their min-eral resources to promote sustainable development. And particularly for the least developed countries en-dowed with natural resources, the boom should help them meet the Millennium Development Goals. In this endeavour, all countries and companies concerned have a role to play.

About the Paper

The article is based on the World Investment Report 2007 by UNCTAD accessible at www.unctad.org/wir

35

35

46

46

49

53

66

98

114

129

188

366

512

550

584

1 427

749

1 045

1 291

0 100 200 300 400 500 600 700 800 900 1000 1100 1200 1300 1400 1500

ONGC

Norsk Hydro

Lukoil

CNOOC

Sinopec

Statoil

Petrobras

Petronas

BG

Inpex

CNPC/Petro China

Repsol-YPF

ConocoPhillips

Chevron

ENI

Total

Royal Dutch Shell

BP

ExxonMobil

Figure 2. Oil and gas production of selected TNCs outside their home country, 2005(Millions of barrels of oil equivalent) Source: UNCTAD, based on data from the Raw Materials Group and IHS.

refugees, or political detainees. In October 1943, Allied forces liberated Naples as they advanced northward through Italy. A typhus epidemic broke out shortly after the liberation, posing a significant threat to both troops and civilians.[1] The U.S. military mixed DDT with an inert powder and dusted it on troops and refugees, to great effect. Public health expert Fred Soper noted that "a thor-ough application of 10 percent DDT louse powder to the patient, his clothing and bedding and to the members of his household will greatly reduce the spread of typhus in the community."[2]

Dusting stations were set up around the city, and in Janu-ary 1944, two delousing stations dusted 1,300,000 civil-ians. Within three weeks of the dusting (along with other less important treatment and vaccination programs), the epidemic was under control. The number of civilian cases was halved in the first week alone. The Allies adminis-tered more than three million applications of DDT powder in Naples.

For his achievements, Mueller was awarded the Nobel Prize for physiology and medicine in 1948. Presenting the prize to Mueller, the Nobel Committee remarked that "for the first time in history a typhus outbreak was brought under control in winter. DDT had passed its ordeal by fire with flying colours." The committee went on to note that "DDT has been used in large quantities in the evacuation of concentration camps, of prisoners and deportees. With-out any doubt, the material has already preserved the life and health of hundreds of thousands. Currently DDT treat-ment is the sovereign remedy the world over for the pro-phylaxis of typhus."[3]

Abstract

DDT is probably the single most valuable chemical ever synthesized to prevent disease. It has been used con-tinually in public health programs over the past sixty years and has saved millions from diseases like ma-laria, typhus, and yellow fever. Despite a public back-lash in the 1960s, mainstream scientific and public health communities continue to recognize its utility and safety. DDT's delisting for various uses in the United States in 1972 was a political, not a scientific, judg-ment. After decades of extensive study and use, DDT has not been proven to be harmful to humans. But by 1997, its future looked bleak. Environmentalists were pushing for it to be banned worldwide, and its most articulate champion, the South African Department of Health, stopped using it. Surprisingly, DDT recovered its reputation, and in 2006 the World Health Organization (WHO) championed it again. But celebrations have been short-lived. The momentum to increase DDT use has stalled for lack of increased political and financial support.

Introduction

Bill and Melinda Gates recently called for the eradica-tion of malaria. They were supported in this ambitious demand by Margaret Chan, the head of WHO. The first attempt to eradicate malaria in the 1950s relied almost solely on the chemical DDT; the latest attempt probably will not. But until a cheap and effectual vaccine is avail-able, DDT will still have a crucial role to play.

DDT, the scientific name of which is dichlorodiphenyltri-chloroethane, was first synthesized by Othmar Zeidler in 1874, but it was not until the 1930s that a scientist working for a Swiss chemical company discovered its insecticidal properties. Paul Mueller happened upon it when looking for an insecticide to control clothes moths. He sprayed a small amount of DDT into a con-tainer and noted the slow but sure way it killed flies. He wiped the container clean, but when he added new flies, they died, too. Mueller soon realized he had come across a persistent, powerful residual insecticide.

DDT was first used by the Allies during World War II to control lice-borne typhus. Typhus had always been a problem during wars, especially in camps for prisoners,


The Rise, Fall, Rise, and Imminent Fall of DDT**

Roger Bate American Enterprise Institute for Public Policy Research, 1150 Seventeenth Street, N.W. Washington, DC 20036

The paper was first published in Health Policy Outlook No. 14, November 2007, American Enterprise Institute for Policy Research.

The Mosquito and rolling back malaria

tant mechanism, and along with DDT's long residual time, it makes DDT superior to other insecticides. Its repellency qualities have long been known, but they have largely been forgotten by the malaria-fighting community.[8]

The United States funded "vector control"--that is, control of mosquitoes--for much of the early twentieth century and had considerable expertise and experience in this field. Infectious diseases such as malaria, yellow fever, and den-gue were common throughout most parts of the United States until the 1950s.[9]

Shortly after World War II, the U.S. Public Health Service (PHS), along with the Tennessee Valley Authority and the Rockefeller Foundation, started to fund the use of DDT in malaria control. Malaria had been declining in the United States before DDT was introduced because of improved standards of living, notably window screens and other methods of protection from mosquitoes. In urban areas, better drainage and larviciding improved mosquito control, which in turn led to fewer cases of malaria. DDT proved to be a crucial intervention in rural areas, however. As a PHS document from 1944-45 notes:

Drainage and larviciding are the methods of choice in towns of 2,500 or more people. But malaria is a rural dis-ease. Heretofore there has been no economically feasible method of carrying malaria control to the individual tenant farmer or share cropper. Now, for the first time, a method is available--the application of DDT residual spray to walls and ceilings of homes.[10]

Mosquito control officers in the United States used DDT in two ways: as a residual insecticide on the walls of houses[11] and as a larvicide. The results were dramatic. By 1952, there were virtually no cases of malaria transmitted domestically, in contrast to the 1-6 million cases just a few years earlier.[12] Of the 437 confirmed malaria cases in the United States in the first half of 1952, only two were domestically caught (the many soldiers returning from the Korean War caused a significant number). Most cases treated in the United States after 1952 were those caught overseas.[13] Just as DDT was being used within the United States, it was also saving lives in Europe, and within a few years, malaria was almost eradicated from Europe.

South Africa was one of the first countries to use DDT in malaria control. It started using the insecticide in 1946, and within a few years, the malarial areas had decreased to just 20 percent of those observed in 1946.[14] India's malaria control program began to use DDT and shortly thereafter saw spectacular health benefits. Between 1953 and 1957, morbidity was more than halved from 10.8 per-

DDT was to prove itself to be the most effective weapon not only against typhus, but also against many other insect-borne diseases. Indeed, near the end of World War II, on September 24, 1944, Winston Chur-chill noted the vital importance of DDT:

We have discovered many preventives against tropical diseases, and often against the onslaught of insects of all kinds, from lice to mosquitoes and back again. The excellent DDT powder which had been fully experi-mented with and found to yield astonishing results will henceforth be used on a great scale by the British forces in Burma and by the American and Australian forces in the Pacific and India in all theatres.[4]

Malaria and DDT

Malaria is a parasitic disease that has plagued man-kind for centuries. Today the disease is mostly con-fined to tropical and subtropical areas of Africa, Asia, and Latin America, but this was not always so. Until the 1950s, malaria was widespread in Europe and North America, and epidemics were even recorded above the Arctic Circle.

In 1898, Ronald Ross, a medical doctor stationed with the British army in India, discovered that mosquitoes transmit malaria. Shortly thereafter, a leading Italian zoologist, Giovanni Battista Grassi, identified the spe-cific genus of mosquito (Anopheles) responsible for transmitting the malaria-causing parasite.[5] The knowledge that mosquitoes transmitted malaria gave public health experts a powerful new way to control the disease: targeting the mosquitoes as the carriers--or vectors--of the parasite that causes malaria.

Insecticides, notably pyrethrum, had been used in ma-laria control prior to DDT. They were sprayed on the inside walls of houses where the Anopheles mosquito rests after feeding. The mosquito takes up the insecti-cide while she rests on the wall and the toxicity kills her. One of the significant limiting factors of this form of vector control--known as indoor residual spraying (IRS)--was that it is labor-intensive and therefore ex-pensive, especially since the insecticides used before DDT had to be sprayed every two weeks.[6] DDT, how-ever, lasted for over six months.[7] This long-lasting residual action meant that a malaria control team could cover many more houses and protect far more people.

When used in malaria control, DDT has three separate mechanisms: repellency, irritancy, and toxicity, which together are remarkably successful at halting the spread of the disease. Repellency is the most impor-


cent to 5.3 percent of the total population, and malaria deaths were reduced almost to zero.[15] After DDT was introduced for malaria control in Sri Lanka (then Cey-lon), the number of malaria cases fell from 2.8 million in 1946 to just 110 in 1961.[16] Taiwan adopted DDT for malaria control shortly after World War II. In 1945, there were over 1 million cases of malaria on the island; by 1969, however, there were only nine cases, and shortly thereafter the disease was permanently eradi-cated from the island.[17] Similarly spectacular de-creases in malaria cases and deaths were seen every-where DDT was used.

The United States was not the only country in the Ameri-cas to use DDT to great effect. Table 1 details the dra-matic impact of DDT on malaria cases in selected coun-tries in the Americas. Notably, success was greatest in island countries, where the vector could be contained most easily. In 1955, WHO launched its own malaria eradication program, based on the extraordinary suc-cesses seen thus far with DDT. The program was funded mostly by the U.S. government.

In the early 1950s, cases of DDT resistance among vari-ous Anopheles species were detected by public health


experts. In order to preempt the development of insecti-cide resistance, WHO proposed to overwhelm the mos-quito population with spraying to reduce the population dramatically before any insecticide resistance could de-velop.[18] This ultimately failed due to donor fatigue, weak public health infrastructure, and poor management. DDT resistance contributed to the failure, but it is often discussed as the only reason the campaign failed, when its contribution in most areas was negligible. The meme that resistance to DDT was the reason for its demise is a key reason why the public health community continues to ignore DDT's main strength: repellency, which is as far as we know unaffected by resistance.

DDT and Its Delisting

The modern environmental movement began with con-cerns about DDT. Rachel Carson's 1962 book Silent Spring questioned the effect that synthetic chemicals were having on the environment. Her argument was that DDT and its metabolites make bird eggshells thinner, leading to egg breakage and embryo death. Carson pos-tulated that DDT would therefore severely harm bird re-production, leading to her theoretical "silent spring." She also implied that DDT was a human carcinogen by telling

Table 1. Malaria morbidity before and after malaria was controlled or eradicated by DDT

Source: WHO, Executive Board, 47th Session, Appendix 14, The place of DDT in operations against malaria and other vector-borne diseases, No. 190, January, 19-29, 1971 (Geneva: WHO, 1971) 177

Country Year Cases Percent Change

Cuba 1962 3,519

1969 3 -99.9 Dominica 1950 1,825

1969 0 -100 Dominican Republic 1950 17,310

1968 21 -99.8 Granada and Curacao 1951 3,233

1969 0 -100 Jamaica 1954 4,417

1969 0 -100 Trinidad and Tobago 1950 5,098

1969 5 -99.9 Venezuela 1943 817,115

1958 800 -99.9

to put it mildly. But I was compelled by the facts to tem-per my emotions."[25]

Although many believe that DDT was banned after 1972, it actually was not. It continued to be used in emergen-cies for pest control, for which exemptions were granted by the federal government, and it is still available for public health use today. In January 1979, DDT was used to suppress flea vectors of murine typhus in Louisiana.[26] As late as June 1979, the California Department of Health Services was permitted to use DDT to suppress flea vectors of bubonic plague.[27] Texas got an exemp-tion to control rabid bats in October 1979.[28] Between 1972 and 1979, DDT was used to combat the pea leaf weevil and the Douglas-fir tussock moth in the Pacific Northwest; rabid bats in the Northeast, Wyoming, and Texas; and plague-carrying fleas in Colorado, New Mex-ico, and Nevada.[29] State governments, with the per-mission of the federal government, continued to leverage DDT to protect public health and agriculture. Manufactur-ing DDT for export was also allowed.

DDT and Human Health

Since its discovery, countless millions of people have been exposed to DDT in one way or another. A 2000 arti-cle in The Lancet concluded that "in the 1940s many people were deliberately exposed to high concentrations of DDT through dusting programmes or impregnation of clothes, without any apparent ill effect. There are proba-bly few other chemicals that have been studied in as much depth as has DDT, experimentally or in human be-ings."[30] Furthermore, since the 1940s, thousands of tons of DDT have been produced and distributed throughout the world, and millions of people have come into direct contact with substantial amounts. Initially, DDT distribution was restricted to soldiers in World War II and those saved from concentration camps in Germany, and then to the general public in the aftermath of World War II. When demand for DDT escalated after the war, a plethora of studies were conducted on DDT's safety for humans.

The Lancet article summed up the prevailing evidence on DDT human toxicity as follows: "Ingestion of DDT, even when repeated, by volunteers or people attempting sui-cide, has indicated low lethality, and large acute expo-sures can lead to vomiting, with ejection of the chemi-cal." Furthermore, "If the huge amounts of DDT used are taken into account, the safety record for human beings is extremely good."[31]

There are other important studies of those exposed more recently. Chris Curtis of the London School of Hygiene

anecdotal stories of individuals dying of cancer after using DDT.[19]

But while Carson's influence increased over the next decade, DDT continued to be used around the world, saving lives from disease. In 1971, after considerable pressure from environmentalist groups, the newly formed Environmental Protection Agency (EPA) held scientific hearings investigating DDT. The hearings lasted for more than eight months, involving 125 wit-nesses with 365 exhibits. The administrative law judge in charge of the hearings, Edmund Sweeney, ruled that DDT should remain available for use. With reference to the supposed environmental harms associated with DDT, he noted that "[t]he uses of DDT under the regis-tration involved here do not have a deleterious effect on freshwater fish, estuarine organisms, wild birds or other wildlife."[20] He added, "DDT is not a carcino-genic hazard to man. . . . DDT is not a mutagenic or teratogenic hazard to man."[21]

In other words, after many months of hearings, DDT was not found to represent a cancer threat to humans, to cause mutations in humans, or to threaten the devel-opment of fetuses. DDT was relatively benign, and the allegations against it did not stand up to scrutiny.

Although Sweeney ruled that any existing uses of DDT should not be cancelled, he was overruled in 1972 by the administrator of the EPA, William Ruckelshaus, who did not attend one hour of the hearings. According to a report in the Santa Ana Register quoting Ruckelshaus's chief of staff, Marshall Miller, Ruckelshaus did not even read the entire hearing report.[22] The decision to can-cel certain uses of DDT was essentially a political one without any grounding in good science.[23]

Evidence of the political, as opposed to scientific, na-ture of DDT's delisting can be found in remarks made by Ruckelshaus before the delisting. As assistant attor-ney general, Ruckelshaus stated in a report to the U.S. Court of Appeals on August 31, 1970:

DDT is not endangering the Public Health. To the con-trary, DDT is an indispensable weapon in the arsenal of substances used to protect human health and has an amazing and exemplary record of safe use. . . . DDT, when properly used at recommended concentrations, does not cause a toxic response in man or other mam-mals and is not harmful.[24]

When he addressed the Audubon Society on May 2, 1971, however, less than a year later but after he had joined the EPA, he said, "As a member of the Society, myself, I was highly suspicious of this compound [DDT],



and Tropical Medicine has studied the health of Brazilian and Indian insecticide sprayers who had been exposed to DDT. He found that their health "was similar to other men of their age"--in other words, DDT spraying did not no-ticeably affect their health.[32]

The Agency for Toxic Substances and Disease Registry (ATSDR) at the Centers for Disease Control and Preven-tion (CDC) is the agency in charge of evaluating the health effects of hazardous substance exposure. ATSDR re-viewed DDT's association with breast cancer, pancreatic cancer, Hodgkin's disease and Non-Hodgkin lymphoma, multiple myeloma, prostate and testicular cancer, endo-metrial cancer, and the occurrence of any other cancer. One of its assessments was that "taking all factors into consideration, the existing information does not support the hypothesis that exposure to DDT/DDE/DDD increases the risk of cancer in humans."[33]

Leading U.S. toxicologists Bruce Ames (a 1998 recipient of the U.S. National Medal of Science) and Lois Gold (of the University of California at Berkeley) place the cancer risk associated with DDT in broader perspective. Their research shows that even at the height of DDT's use in agriculture, the cancer risk associated with the chemical was far lower than the cancer risks of everyday foods.[34] Ames sums up the risk of pesticides and their carcino-genic threat to man as follows:

You would certainly put your attention on cups of coffee before you'd put your attention on dietary residues of pes-

ticides. You get more carcinogen in one cup of coffee than from a year's worth of potentially carcinogenic pes-ticide residues. Pesticides just aren't something that inherently seem very interesting as possible causes of human cancer.[35]

Public health agencies and the written literature have found no strong evidence linking DDT or its metabolites with human cancer. Given the fact that DDT has been used in enormous quantities for over six decades and that many studies into its potential carcinogenicity have been conducted without drawing any evidence thereof, we can be relatively sure that DDT is not responsible for human cancer.

The Return of DDT

DDT leaves stains on mud walls, which was the primary reason South Africa's malaria control program replaced the use of DDT in 1996 with another chemical class--synthetic pyrethroids--although pressure from environ-mentalists certainly contributed. What followed was one of the country's worst malaria epidemics. Over four years, malaria cases increased by around 800 percent and malaria deaths increased tenfold (see figure 1).

At the same time, environmentalist pressure against the chemical was increasing. Environmental groups that had previously shown no interest in malaria, such as the World Wildlife Fund, started to profess expertise in alternatives to DDT use--any alternative, as long as it

Malaria Cases and Deaths in South Africa, 1971-2006

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An. funestus found in South Africa w ith resistance to synthetic pyrethroids

Resistance to sulfadoxine pyrimethamine reaches 68 percent

DDT reintroduced in Kw aZulu-Natal


was not DDT.[36] Between 1997 and 2000, member states of the United Nations Environment Program ne-gotiated the Stockholm Treaty on Persistent Organic Pollutants, with DDT as one of the "dirty dozen" chemi-cals targeted. Green groups wanted the chemical banned and set 2007 as the year for its demise.[37] Ironically, because of the disastrous surge in malaria cases in South Africa, coupled with Johannesburg being chosen as the final negotiating location in December 2000, DDT was not banned; instead, it was to be phased out when "cost-effective alternatives" were available.[38]

In 2000, the South African Department of Health rein-troduced DDT. In just one year, malaria cases fell nearly 80 percent in KwaZulu-Natal province, which had been hit worst by the epidemic. In 2006, malaria cases in the province were approximately 97 percent below the pre-vious high of 41,786 in 2000. DDT remains an essen-tial part of South Africa's malaria control program, and the success of its use in that country has encouraged other countries in the region to follow suit.

The South African epidemic, tragic though it was, not only ultimately strengthened the case for DDT and IRS in general, but also gave strength to other malaria con-trol programs in Africa that wanted to use DDT and ex-pand their insecticide spraying.

In 2000, a private mining company in Zambia restarted a malaria control program that had been discontinued in the early 1980s due to economic constraints. This malaria control program, managed and paid for by the Konkola Copper Mine, was designed to protect over 365,000 people living in almost 32,500 dwellings. Al-most 80 percent of these dwellings were sprayed inside with DDT, and after the first spraying season, malaria incidence fell by 50 percent.[39] After the second spraying season, malaria cases declined further by 50 percent, and today malaria mortality at the mine clinics has fallen to zero. This program has been so successful that other private companies in the region have adopted similar approaches, and the Zambian govern-ment--with funding from the Global Fund for AIDS, Tu-berculosis and Malaria--has restarted similar programs in five other districts.

In July 2005, the Mozambican government started us-ing DDT again. Others have wanted to follow suit. Ap-proximately 93 percent of Uganda's population, for ex-ample, is at risk from malaria. According to the CDC, the incidence of the disease has increased from 5 mil-lion cases in 1997 to 16.5 million in 2003.[40] The Ugandan health department has wanted to use DDT

since at least 2005, and in January 2007, DDT passed its environmental assessment.[41] But as of October 2007, it has not been used.

In 2005, President George W. Bush anounced the Presi-dent's Malaria Initiative (PMI) under the auspices of the U.S. Agency for International Development (USAID). The PMI was designed as a $1.2 billion intervention over five years targeted to fifteen African countries where there was both an urgent need and an ability to have an im-pact.[42] In September 2006, Rear Admiral Tim Ziemer, the PMI coordinator, announced: "I anticipate that all 15 of the country programs of President Bush's $1.2 billion commitment to cut malaria deaths in half will include sub-stantial indoor residual spraying activities, including many that will use DDT."[43]

For over fifty years, DDT has been on WHO's list of ap-proved insecticides for use in vector control. It experi-enced a resurgence with reforms to WHO's malaria con-trol policy in late 2005 when the then-director-general, the late J. W. Lee, appointed Arata Kochi to lead the ma-laria unit. On September 15, 2006, Kochi launched WHO's revised policy position on IRS. In his candid re-marks, he explained how and why WHO had arrived at a position that strongly supports IRS and DDT:

I asked my staff; I asked malaria experts around the world: "Are we using every possible weapon to fight this disease?" It became apparent that we were not. One pow-erful weapon against malaria was not being deployed. In a battle to save the lives of nearly one million children every year--most of them in Africa--the world was reluctant to spray the inside of houses and huts with insecticides; especially with a highly effective insecticide known as dichlorodiphenyltrichloroethane or "DDT."[44]

Today, even some of the largest environmental groups have accepted the WHO position. The Sierra Club officially states that it "does not oppose the indoor use of DDT to control malaria where it is critically needed and proven to be effective."[45] The Global Fund acts as a funding en-tity, providing support for projects that an expert panel considers feasible and valuable. Since its inception in 2002, it has provided funds for IRS programs, including the purchase of DDT.[46]

DDT is not always the appropriate intervention. In some instances, other insecticides will be better, especially for use outside. Nor is DDT a magic bullet. Other interven-tions, such as insecticide-treated bed nets, play a useful and sometimes critical role in malaria control. IRS pro-grams with DDT or any other insecticide require a sound health system infrastructure. Some complain that in poor


countries with year-round malaria, IRS is not a good use of resources and is not sustainable.[47] In a few set-tings, spending any money on malaria control of any variety is not the best use of very scarce resources, but it is debatable whether bed-net distribution programs under such conditions have any significant impact on malaria either. As for sustainability, if funding is not found to make a program sustainable, it will not be sus-tained, whether the program distributes bed nets or drugs or conducts spraying. Mozambique, which has very poor health infrastructure, has managed to sustain a well-run IRS program for over seven years by partner-ing with neighboring South Africa and Swaziland in the Lubombo Spatial Development Initiative.[48] As a result of this initiative, the country's malaria burden has dra-matically decreased.[49] Regional leaders decided to make malaria control sustainable, and this is what has happened.[50]

The Imminent Fall of DDT

The voices arguing against DDT have become louder recently, in part because funding for other interventions has come under threat. Countries are using other insec-ticides in their expanded spray programs, but they are not using DDT. Since the late-2005 turnaround at USAID and the September 2006 statements from WHO about the benefits of DDT, no country has started to use it again. Uganda has come closest so far, but to no avail. Health department malaria experts in Kenya and Tanzania have told me and others that they would like to use DDT, but business continues as usual.

This is not the fault of senior management at the PMI. But according to field sources and from personal ex-perience, the same cannot be said of all USAID staff, many of whom are still upset about the PMI's scientifi-cally valid but nevertheless politically charged 2005 decision to promote DDT once again. Furthermore, Global Fund support is weak, and anecdotal field re-ports indicate that its contractors in the field are not always supporters of DDT. Many other aid agencies are even worse, often actively opposing IRS, and DDT in particular, on the ground. The environmental move-ment continues to exaggerate the dangers of DDT. Some corporations go even further. Bayer actively dis-couraged the use of DDT in Uganda, citing a possible threat to the country's supply of food for export. But the company's business manager admitted that more was at stake than food safety: "DDT use is for us a commer-cial threat."[51]

Bias in the academic literature is accelerating. A recent article in The Lancet Infectious Diseases alleges that

superior methods for malaria control exist--without provid-ing a single reference for this claim.[52] The authors claim that DDT represents a public health hazard by citing two studies that, according to a 1995 WHO technical re-port, do not provide "convincing evidence of adverse ef-fects of DDT exposure as a result of indoor residual spray-ing."[53] Furthermore, the authors misrepresent those defending the use of DDT. They claim that supporters view DDT as a "panacea"--dogmatically promoting it at every opportunity--yet they do not provide any evidence to back up their opinion.

The United Nations is once again ramping up opposition to the use of DDT. At its third session, ending on May 4, 2007, "the Conference of the Parties of the Stockholm Convention requested its secretariat in collaboration with the World Health Organization and interested parties to develop a business plan for promoting a global partner-ship to develop and deploy alternatives to DDT for dis-ease vector control."[54] Since there are so many players who want to sell alternatives to DDT, the chemical has few champions, and since those represented in this group are no friends of DDT, the partnership is likely to be broad, well-financed, and politically connected. It may prove to be the final nail in DDT's coffin.

DDT is no panacea, but it has a better track record on malaria control than any other intervention. Lives are lost every day because of continued opposition to its use. With development and modernization and, perhaps, a vaccine, DDT will one day no longer be necessary, but that day is still a long way off.

The Author

Roger Bate ([email protected]) is a resident fellow at AEI.

AEI research assistant Karen Porter and editorial assis-tant Evan Sparks worked with Mr. Bate to edit and pro-duce this Health Policy Outlook.

Notes

1. See Fred L. Soper, W. A. Davis, F. S. Markham, and L. A. Riehl, "Typhus Fever in Italy, 1943-1945, and Its Control with Louse Powder," American Journal of Hy-giene 45, no. 3 (May 1948): 305-334.

2. Ibid.

3. G. Fischer, "The Nobel Prize in Physiology or Medicine 1948 Presentation Speech," in Nobel Lectures, Phy-siology or Medicine 1942-1962 (Amsterdam: Elsevier,


1964), available at www.nobelprize.org/nobel_prizes/medicine/laureates/1948/press.html (accessed October 24, 2007).

4. Trustham Frederick West and G. A. Campbell, DDT: The Synthetic Insecticide (London: Chapman and Hall, 1946), 11.

5. Until then, there were numerous explanations of how malaria spread. The most accepted was that the foul air emanating from swamps gave people fevers, and hence the name of the disease derived from the Italian mal (bad) and aria (air).

6. See Gordon A. Harrison, Malaria, Mosquitoes and Man: A History of the Hostilities since 1880 (London: John Murray, 1978); and B. L. Sharp and D. le Sueur, "Malaria in South Africa--The Past, the Present, and Selected Implications for the Future," South African Medical Journal 86, no. 1 (1996): 83-89.

7. Studies have shown that DDT is actually active against mosquitoes for far longer. One study found that DDT was active on walls for at least eleven months.

8. The first published reference to repellency was R. L. Metcalf, A. D. Hess, G. E. Smith, G. M. Jeffrey, and G. W. Ludwig, "Observations on the Use of DDT for the Control of Anopheles quadrimaculatus," Public Health Reports 60, no. 27 (July 1945). The latest is from this year: John P. Grieco et al., "A New Classifi-cation System for the Actions of IRS Chemicals Tra-ditionally Used for Malaria Control," PLoS ONE 2, no. 8 (2007): e716, available at www.pubmedcentral.nih.gov/articlerender.fcgi?artid=1934935 (accessed October 24, 2007).

9. Erwin Heinz Ackerknecht, Malaria in the Upper Mis-sissippi Valley, 1760-1900 (Baltimore: Johns Hop-kins University Press, 1948).

10. U.S. Public Health Service (PHS), Malaria Control in War Areas, 1944-45 (Washington: Federal Security Agency, 1945), 134.

11. Ibid. The program was slated to spray 1,222,225 homes (17); by the end of the fiscal year, only 300,000 were sprayed (18), with about eight oun-ces of DDT used per house. A house was estimated to have an average size of 2,200 square feet, and DDT was sprayed at 100 milligrams per square foot (18).

12. Ibid.

13. U.S. Department of Health, Education, and Welfare, PHS, Communicable Disease Center, "Activities," 1951-52, 27-29. Copy on file with author.

14. Richard Tren and Roger Bate, Malaria and the DDT Story (London: Institute of Economic Affairs, 2001), available through www.aei.org/book473/.

15. Gordon A. Harrison, Malaria, Mosquitoes and Man: A History of the Hostilities since 1880.

16. Ibid.

17. World Health Organization (WHO), Executive Board, 42nd Session, Appendix 14, The Place of DDT in Ope-rations Against Malaria and Other Vector-Borne Disea-ses, 177.

18. Gordon A. Harrison, Malaria, Mosquitoes and Man: A History of the Hostilities since 1880.

19. Rachel Carson, Silent Spring (1962; New York: Hough-ton Mifflin, 1972), 198, 200-201.

20. Edmund Sweeney, "EPA Hearing Examiner's Recom-mendations and Findings Concerning DDT Hearings," 40 CFR 164.32 (April 25, 1972).

21. Ibid.

22. "EPA Chief Did Not Read All Evidence," Register (Santa Ana, CA), July 23, 1972.

23. The delisting of DDT was the first project that the EPA undertook, and Ruckelshaus was probably eager to demonstrate the authority of the newly formed agen-cy.

24. Environmental Defense Fund v. Hardin, 428 F.2d 1093 (D.C. Cir. 1970).

25. Barron's, November 10, 1975.

26. Federal Register 44, no. 68 (April 6, 1979), 20785.

27. Federal Register 44, no. 147 (July 30, 1979), 44611.

28. Federal Register 45, no. 14 (January 21, 1980).

29. Federal Register 39, no. 129 (July 3, 1974); Federal Register 39, no. 171 (September 3, 1974); Federal Register 41, no. 224 (November 18, 1976); Federal Register 42, no. 8 (January 12, 1977); Federal Regis-ter 41, no. 144 (July 26, 1976); and Federal Register 42, no. 159 (August 17, 1977).

30. A. G. Smith, "How Toxic is DDT?" The Lancet 36, no. 9226 (July 22, 2000), available at www.malaria.org/smithddt.html (accessed October 24, 2007).

31. Ibid.

32. C. F. Curtis and J. D. Lines, "Should DDT Be Banned by International Treaty?" Parasitology Today 16, no. 3 (March 1, 2000): 119-121. See also Melville Litchfield, "Estimates of Acute Pesticide Poisoning in Agricultural Workers in Less Developed Countries," Toxicological Reviews 24, no. 4 (2005): 271-78.


33. U.S. Department of Health and Human Services, PHS, Agency for Toxic Substances and Disease Re-gistry, Toxicological Profile for DDT, DDE and DDD, September 2002, 108, available at www.atsdr.cdc.gov/toxprofiles/tp35.pdf (accessed October 24, 2007).

34. Bruce N. Ames and Lois Swirsky Gold, "The Causes and Prevention of Cancer: Gaining Perspectives on Management of Risk," in Risks, Costs, and Lives Sa-ved: Getting Better Results from Regulation, ed. Ro-bert W. Hahn (Oxford: Oxford University Press, 1996), 4-35, available through www.aei.org/book663/. See also Roger Bate, ed. What Risk: Science, Politics and Public Health (Oxford: Butterworth-Heinemann, 1998), available through www.aei.org/book467/.

35. Bruce Ames, personal communication with the au-thor, October 15, 2003.

36. Amir Attaran, Richard Liroff, and Rajendra Maharaj, "Doctoring Malaria, Badly: The Global Campaign to Ban DDT--Ethical Debate," British Medical Journal 321 (December 2, 2000), available at www.bmj.com/cgi/reprint/321/7273/1403.pdf (accessed October 24, 2007).

37. See Richard Tren and Roger Bate, Malaria and the DDT Story.

38. WHO, "WHO Position on DDT Use in Disease Vector Control under the Stockholm Convention on Persis-tent Organic Pollutants," 2005, available at www.who.int/malaria/docs/WHOpositiononDDT.pdf (accessed September 28, 2007).

39. Brian Sharp et al., "Malaria Control by Residual In-secticide Spraying in Chingola and Chililabombwe, Copperbelt Province, Zambia," Tropical Medicine and International Health 7, no. 9 (September 2002), 732-36.

40. National Center for Infectious Diseases, Division of Parasitic Diseases, "Malaria Control in Uganda--Towards the Abuja Targets," April 23, 2004, available at www.cdc.gov/malaria/control_prevention/uganda.htm (accessed October 24, 2007).

41. Roger Bate and Richard Tren, "AFM Writes to EU to Demand Explanation on DDT & Uganda Issue," news release, April 6, 2006, available at www.fightingmalaria.org/pressrelease.aspx?id=709 (accessed October 24, 2007).

42. See the President's Malaria Initiative's website at www.fightingmalaria.gov (accessed October 24, 2007).

43. WHO, "WHO Gives Indoor Use of DDT Clean Bill of Health for Controlling Malaria," news release, Sep-tember 15, 2006, available at www.who.int/

mediacentre/news/releases/2006/pr50/en/index.html (accessed October 24, 2007).

44. Arata Kochi, "WHO Malaria Head to Environmenta-lists: 'Help Save African Babies as You Are Helping to Save the Environment'" (press statement, National Press Club, Washington, DC, September 15, 2006), available at http://malaria.who.int/docs/KochiIRSSpeech15Sep06.pdf (accessed October 24, 2007).

45. Sierra Club, "Sierra Club's Position on the World Health Organization's Promotion of Indoor Use of DDT to Control Malaria," November 2006, available at www.sierraclub.org/toxics/ddt/ (accessed October 24, 2007).

46. For two malaria control programs--Zambia's and that of the Lubombo Spatial Development Initiative (LSDI)--Global Fund monies were used to purchase DDT.

47. This was argued in the case of India. See Gordon A. Harrison, Malaria, Mosquitoes and Man: A History of the Hostilities since 1880, 251-54; and WHO Expert Committee on Malaria, Twentieth Report, WHO Tech-nical Report Series 892, 2000, 38, www.rbm.who.int/docs/ecr20.pdf (accessed October 24, 2007).

48. LSDI, "Background," available at www.malaria.org.za/lsdi/Background/background.html (accessed October 24, 2007).

49. LSDI, "Progress," available at www.malaria.org.za/lsdi/Progress/progress.html (accessed October 24, 2007).

50. For a more extensive discussion of Mozambique's more-than-twenty-year-old malaria eradication cam-paign, see Musawenkosi L. H. Mabaso, Brian Sharp, and Christian Lengeler, "Historical Review of Malarial Control in Southern Africa with Emphasis on the Use of Indoor Residual House-Spraying," Tropical Medicine and International Health 9, no. 8 (August 2004): 846-56.

51. Alan Beattie, "Commercial Motive Hinted At in Restric-tions on DDT," Financial Times, September 29, 2005.

52. Hans J. Overgaard and Michael G. Angstreich, "WHO Promotes DDT?" The Lancet Infectious Diseases 7, no. 10 (October 2007): 632-33.

53. WHO, Vector Control for Malaria and Other Mosquito-Borne Diseases: Report of a WHO Study Group, Tech-nical Report Series 857, 1995.

54. United Nations Environmental Program, letter to po-tential partners, August 10, 2007.


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